Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 40776 - KE
PROJECT APPRAISAL DOCUMENT
ON A Public Disclosure Authorized
PROPOSED CREDIT
IN THE AMOUNT OF SDR 96.6 MILLION (US$150 MILLION EQUIVALENT)
TO THE
REPUBLIC OF KENYA
FOR A
Public Disclosure Authorized WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
November 20,2007
Water and Urban 1 (AFTU1) Africa Region
This document has a restricted distribution and may be used by recipients only in the
Public Disclosure Authorized perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
(Exchange Rate Effective September 30,2007) Currency Unit = Kenyan Shillings (Ksh) Ksh67.11 = US$1 US$1.5528 = SDR 1
FISCAL YEAR July 1 - June30
ABBREVIATIONS AND ACRONYMS AAP Africa Action Plan AFD Agence franqaise de dkveloppement (French Development Agency) AfDB African Development Bank APL Adaptable Program Loan ASALs Arid or semi-arid land AWSB Athi Water Services Board CAS Country Assistance Strategy CCN City Council ofNairobi CIFA Country Integrated Fiduciary Assessment CPPR Country Portfolio Performance Review CPR Country Program Review CWSB Coast Water Services Board DANIDA Danish International Development Agency DED Deutscher Entwicklungsdienst (German Development Service) EIA Environmental Impact Assessment EIB European Investment Bank EMP Environmental Management Plan ERSWEC Economic Recovery Strategy for Wealth and Employment Creation ESMF Environment and Social Management Framework GOK Government of Kenya GPN General Procurement Notice GTZ Gesellschaft fur Technische Zusammenarbeit (German Technical Corporation) ICR Implementation Completion Report IDA International Development Association IPP Indigenous Peoples Plan IPPF Indigenous Peoples Planning Framework JBIC Japan Bank For International Cooperation JICA Japan International Cooperation Agency KACC Kenya Anti-Corruption Commission KACAB Kenya Anti-Corruption Advisory Board KfW KfWBankengruppe (KfW Banking Group) KNAO Kenya National Audit Office LVNWSB Lake Victoria North Water Services Board M&E Monitoring and Evaluation MDG Millennium Development Goal FOR OFFICIAL USE ONLY MLG Ministry ofLocal Government MOF Ministry ofFinance MTEF Medium Term Expenditure Framework MWI Ministry ofWater and Irrigation NWCPC National Water Conservation and Pipeline Corporation Nwsc Nairobi City Water and Sewerage Company NWSIRP Nairobi Water and Sewerage Institutional Restructuring Project NWSS National Water Services Strategy O&M Operation and Maintenance PAP Project Affected Persons PCT Project Coordination Team PPIAF Public-Private Infrastructure Advisory Facility PRSP Poverty Reduction Strategy Paper RAP Resettlement Action Plan RPF Resettlement Policy Framework SIDA Swedish International Development Cooperation Agency SIL Sector Investment Loan SIP Sector Investment Plan SPA Service Provision Agreement SWAP Sector-wide approach to Planning Ufw Unaccounted-for-Water WAB Water Appeal Board WARIS Water Regulation Information System WaSSIP Water and Sanitation Service Improvement Project WSBs Water Services Boards WSP-AF Water and Sanitation Program - Africa WSPS Water Services Providers WSRB Water Services Regulatory Board wss Water Supply and Sanitation WSTF Water Services Trust Fund WSTG Water and Sanitation Technology Group
Vice President: Obiageli K. Ezekwesili Country Director: Colin Bruce Sector Manager: Jaime M. Bideman Task Team Leader: Fook Chuan Eng
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.
KENYA WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
CONTENTS
Page I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues...... 1 B. Rationale for Bank involvement ...... 3 C . Higher level objectives to which the project contributes ...... 4 I1. PROJECT DESCRIPTION ...... 5 A . Lending instrument ...... 5 B. Program objective and phases ...... 5 C . Project development objective and key indicators ...... 5 D. Project components ...... 6 E. Lessons learned and reflected in the project design ...... 9 F. Alternatives considered and reasons for rejection ...... 10 I11. IMPLEMENTATION ...... 11 A . Partnership arrangements ...... 11 B. Institutional and implementation arrangements...... 13 C . Monitoring and evaluation ofoutcomeshesults ...... 15 ... D. Sustsunabihty ...... 16 E. Critical risks and possible controversial aspects ...... 17 F. Loadcredit conditions and covenants., ...... 19 IV. APPRAISAL SUMMARY ...... 20 A . Economic and financial analyses ...... 20 B. Technical ...... 21 C . Fiduciary ...... 22 D. Social...... 23 E. Environment ...... 25 F. Safeguard policies., ...... 25 G. Policy Exceptions and Readiness...... 28 Annex 1: Country and Sector or Program Background...... 29 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 36 Annex 3: Results Framework and Monitoring ...... 38 Annex 4: Detailed Project Description...... 50 Annex 5: Project Costs ...... 62 Annex 6: Implementation Arrangements ...... 63 Annex 7: Financial Management and Disbursement Arrangements...... 71 Annex 8: Procurement Arrangements ...... 89 Annex 9: Economic and Financial Analysis ...... 105 Annex 10: Safeguard Policy Issues ...... 115 Annex 11: Project Preparation and Supervision ...... 125 Annex 12: Documents in the Project File ...... 127 Annex 13: Statement of Loans and Credits ...... 128 Annex 14: Country at a Glance ...... 130 Annex 15: Principles and Premises Governing the Project ...... 133 Annex 16: Sector Governance Strengthening and Project Transparency and Accountability Arrangements ...... 136 Annex 17: Summary of Communications Strategy ...... 146 Annex 18: Informal Settlements Strategy...... 152 Annex 19: Maps...... 159 Map BRD no. KEN33426 KENYA
WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
PROJECT APPRAISAL DOCUMENT
AFRICA
AFTUl
Date: November 20, 2007 Team Leader: Fook Chuan Eng Country Director: Colin Bruce Sectors: Water supply (80%);Sewerage (20%) Sector ManagedDirector: Jaime M. Biderman Themes: Other urban development (P) Project ID: PO96367 Environmental screening category: Partial Assessment
LendingY Instrument: SDecific Investment Loan
[ ]Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others: Total Bank financing (US$m.): 150.00 Proposed terms: Maturity of 40 years, including a grace period of 10 years
Borrower: Ministry ofWater and Irrigation Attn: Eng. Robert Gakubia Maji House, Ngong Road, P.O. Box 30521 Nairobi Kenya Tel: +254 (0) 20 271 6103
Responsible Agency: Coast Water Services Board Attn: Eng. Iddi Mwasina, CEO P.O. BOX90417-80100 Mombasa Kenya Tel: + 254 (0) 41 231 5230 Lake Victoria North Water Services Board Attn: Eng. Dim Magomere, CEO P.O. BOX673-50100 Kakamega Kenya Tel: + 254 (0) 56 30795 Athi Water Services Board Attn: Eng. Lawrence Mwangi, CEO Level 3 Front Wing, Africa Re Centre Hospital Road, Nairobi Kenya Tel: +254 (0) 20 675 0378
Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? I: ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XJNo Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The development objectives ofthe project are to: (a) increase access to reliable, affordable and sustainable water supply and sanitation services; and (b) to improve the water and wastewater services in the areas served by AWSB, LVNWSB and CWSB. This will be achieved by (i) rehabilitating selected existing water production, transmission, storage and distribution facilities and wastewater collection, treatment and disposal facilities, (ii)expanding piped water supply services to under-served areas through the extension ofprimary and secondary distribution pipes where required (this would include service expansion into urban slums / informal settlements through a balanced program including the involvement ofcommunities in decision making), and (iii)refining and strengthening the institutional structure, emphasizing on increasing accountability and transparency ofthe institutional and governance and management framework.
Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 The project would be aligned with sector implementation, reporting and accountability structures and will have three three major components: (1) support to the Athi Water Services Board (AWSB), which will support the rehabilitation and extension of water supply and sewerage networks and institutional strengthening of AWSB and its various water service providers (WSPs). Technical assistance will also be provided to the Water Services Regulatory Board and the Water Appeals Board.
(2) support to the Coast Water Services Board (CWSB), which will support the rehabilitation and extension of water supply and sewerage networks and institutional strengthening of CWSB and its various water service providers (WSPs).
(3) Support to the Lake Victoria NorthWater Services Board (LVNWSB), which will support the rehabilitation and extension of water supply and sewerage networks and institutional strengthening ofLVNWSB and its various water service providers (WSPs).
Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10 The project triggers four safeguard policies: (i)Environmental Assessment (OP/BP 4.0 1); (ii) Involuntary Resettlement (OP/BP 4.12); (iii)Indigenous Peoples (OP/BP 4. lo); and (iv) International Waters (0P.BP 7.50).
Significant, non-standard conditions, if any, for: Ref: PAD C. 7 Board presentation: There are no conditions for Board.
Loadcredit effectiveness: (a) Each of the Project Implementing Entities has established an Institutional Risk Management Policy Framework satisfactory to the Association.
Covenants applicable to project implementation: (a) AWSB, CWSB, LVNWSB and beneficiary WSPs to achieve a positive net income, excluding depreciation and amortization charges, by the end of the Project.
(b) AWSB, CWSB, LVNWSB and beneficiary WSPs not pay any cash dividends except out of net income and then only if immediately after giving effect to such action, its Current Ratio shall not be less than 1.2.
(c) The Recipient shall no later than June 30,2008 or any other date agreed with the Association, complete the transfer ofthe management and operation of water services in accordance with the Transfer Plan.
(d) The Recipient shall ensure that commencing from financial year 2008/09, its budgetary allocations for infrastructure development, and water and sanitation services in the districts located in AWSB, CWSB and LVNWSB service areas is indicated in its budget and channeled through the respective WSBs.
I. STRATEGIC CONTEXT AND RATIONALE
A. Country and sector issues
1. Resource endowments. With an average renewable supply offreshwater resources of, less than 650m3 per capita per year, Kenya stands within the bottom 8% ofcountries in terms of water scarcity. It has wide variation in rainfall both geographically and temporally, with over 80% ofits physical areas consisting ofarid or semi-arid lands (ASALs). The water resources picture makes it crucial for efficient allocation, utilization and management ofthe available water resources, including in the drinking water supply sub-sector. However, the history of water resources management in Kenya is characterized by many years ofinadequate management ofresources and ineffective infrastructure investments.
2. Water supply and sewerage (WSS) services. Kenya made large investments in production and treatment capacities during the 1980’s and 1990’s. But due to inadequate management and maintenance, coupled with a lack ofcommensurate expansion in distribution networks, these investments did not result in efficient and sustainable service distribution. Consequently, by the start ofthe new millennium there was widespread collapse ofinfrastructure due to under-investment in operations and maintenance. WSS operations were not transparent, unsustainable and ill suited to respond to consumer needs. The delivery ofWSS services were fragmented in an incoherent way into the responsibilities ofdifferent agencies and organizations. As a result, there was lack ofcoordination on the one hand and overlap ofmandates on the other resulting in a confbsed sector situation with lack ofaccountability.
3. Adverse impact on the poor. The inability ofWSS utilities to deliver adequate service disproportionately impacted households in informal settlements resulting in reliance on alternative water supply sources (mainly kiosks and private vendors) bought at a much higher cost compared to piped water. Owing partly to migration to the cities and towns, informal settlements makes up a significant proportion ofthe city and town population (e.g., the 1999 official national survey found 30% ofNairobi’s 2.1 million people live in informal settlements). Especially in urban and semi-urban areas, informal settlements are where the majority ofthe low income households are found.
4. Government sector targets. The Government ofKenya’s (GOK) National Water Policy (1999) envisages 100% access to safe water for the country’s population by 2010. The MDG envisages access to safe water and improved sanitation of70% and 93% respectively by 2015. Current coverage figures are 60% and 80% respectively. The GOK realized that the achievement ofthe sectoral targets would not be possible without a comprehensive sector reform.
5. Government policy response. The GOK recognized the need for comprehensive institutional reform and investments in the sector in order to remove the bottlenecks to achieving its sectoral targets and contribute to its poverty reduction objectives. To address the deteriorated situation and the previously fragmented water supply and sanitation (WSS) delivery responsibilities, GOK commenced a comprehensive sector reform in early 2003. The main sector reform vehicle is the Water Act (2002), aimed at harmonizing the management ofwater resources and WSS.
1 6. Water Act (2002). Starting in 2003, the GOK, spearheaded by the Ministry ofWater and Irrigation (MWI) commenced the implementation ofthe Water Act (2002). The Water Act (2002) as a sector reform tool represents one ofthe most far reaching and comprehensive sector reform envisaged and undertaken by any country. The Act called for a complete change ofthe sector landscape to create a comprehensively new institutional setup, aimed at harmonizing and streamlining the management ofwater resources and water supply and sewerage services. A central tenet ofthe new service delivery framework is the separation offunctions between each aspect ofservice delivery - policy making, regulation, asset ownership / control and service delivery operations. The consequent formalization ofrelationships between these functions is expected to reduce conflicts ofinterest and increase transparency and accountability.
7. Governance in the sector. The government has instituted a number ofmeasures and initiatives to combat and halt corruption. In the WSS sector, the GOK has grounded a new service delivery framework within a comprehensive legislative framework [Water Act (2002)], providing for a new institutional setup that is an improvement over the old system in that institutional responsibility and accountability have been made clear, with service delivery institutions subject to specific contracts and transparent audits. There has been significant effort leading to specific improvements in governance and anti-corruption issues - within the sector wide context as well as within the efforts to strengthen specific sector institutions including those supported by the Bank’s Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP). The GOK’s demonstrated commitment to the sector reform provides further reassurance that the governance improvement gained thus far will be improved upon and sustained over the longer term’.
8. Government commitment and roadmap. The GOK has demonstrated continuing commitment to the implementation ofthe Water Act (2002). The GOK (i)is reorganizing the Ministry ofWater and Irrigation (MWI) into a body focused on policy issues, (ii)has established and operationalized new sector oversight institutions i.e., Water Services Regulatory Board (WSRB), a Water Services Trust Fund (WSTF) and a Water Appeal Board (WAB), and (iii)has established and operationalized seven Water Services Boards (WSBs). Each WSB is mandated to appoint Water Services Providers (WSPs), which are legal entities contracted by WSBs to be responsible for service delivery operations. The GOK has developed roadmaps for sector transformation which include the publications ofa ‘Transfer Plany2detailing a series of transitions culminating in the completion ofthe transfer ofthe management and operations of water services to the WSBs. Despite some setbacks and delays3 emanating from the challenges posed by the massive reform effort, the implementation ofthis plan is generally proceeding satisfactorily. Roll-back ofreform has been made unlikely by the degree ofoperationalization ofthe new sector institutions and their demonstrated assumption ofnew sector responsibilities. Increased development partner coordination and partnership with the GOK have provided a
See Annex 1 for a brief description ofGOK commitment to the reform and a description ofgovernance strengthening activities in the Nairobi institutions, and Annex 16 for a more detailed description ofgovernance improvement in the sector and how the project envisages to support governance strengthening in project institutions and in the sector The Water (Plan ofTransfer ofWater Services) Rules, 2005 Key challenges include the restructuring ofthe MWI and the National Water Conservation and Pipeline Corporation (NWCPC) and the fill alignment ofthe budget to the new institutional setup.
2 strong common platform for sector level issues to be discussed and addressed. Additionally, the GOK has commenced a process to implement a Sector-Wide Approach to Planning (SWAP) with strong development partner support. A National Water Services Strategy has also been gazetted.
B. Rationale for Bank involvement
9. Bank’s long term commitment to support WSS in Kenya. The Bank has a long history ofsupporting WSS infrastructure development in Kenya and had maintained continuous and active dialogue with the GOK throughout the period offormulation ofthe new policies and legislations. The Bank supportc# the sector reform and is committed to partner the GOK in the latter’s long term program in the sector. Learning from past experience, the Bank and the GOK took a phased support approach focusing first on the creation ofa sustainable institutional framework. This first phase support, in the form of the Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP), focused on putting in place a transparent and sustainable service delivery framework in Nairobi.
10. Maintaining the momentum of progress and increasing phased support. Under NWSIRP, institutional restructuring has led to a sustainable institutional and management framework and improvements in service delivery in Nairobi. This is acknowledged in the CAS Progress Report where WSS is cited as one ofthe sectors where the Bank intervention has shown positive impact and where sector structural reforms is moving forward. However, significant infrastructure investments are needed throughout Kenya to expand coverage and access to safe water and sanitation services and achieve comprehensive and sustained improvement in the quality of service delivery. Given the achievements of the first phase NWSIRP support, the Bank is now uniquely positioned to assist the GOK to (i)scale up similar institutional strengthening support to other areas, and based on the demonstrated sustainable institutional framework; and (ii)commence significant and sustainable physical infrastructure investments in the sector towards significant service improvement and expansion ofservice coverage.
11. Enhancing development partner coordination and cooperation. Information sharing, coordination and cooperation have increased significantly since 2002 through an increasingly active development partner sector working group (i-e., the Water and Sanitation Technology Group - WSTG) in which the Bank actively participates. Regular GOK / development partners WSS forums commenced in 2006. The Bank has the comparative advantage in urban WSS and its leadership is most appropriate for supporting Water Services Boards with significant urban WSS in particular AWSB and CWSB. The implementation ofNWSIRP had also provided the means to coordinate and cooperate with other development partners. Notably, the Bank has pursued a strategy ofconducting discussions and joint missions with KfW/GTZ/DED and AFD who are or plan to support AWSB, CWSB and LVNWSB. This has now led to the Bank being in a position to help convene a coordinated parallel financed WSS project supporting these three WSBs, further enhancing harmonization and synergy ofdevelopment partner efforts. The Bank continues to dialogue with other development partners (e.g., JBIC, JICA, AfDB and EIB). The second phase project could serve as a catalyst for further development partner cooperation and coordination.
3 C. Higher level objectives to which the project contributes
12. Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC) and Vision 2030. The proposed project would support the sector reform which is consistent with the GOK’s Economic Recovery Strategy for Wealth and Employment Creation 2003 - 2007 (ERSWEC) and Vision 2030, which in effect form the poverty reduction strategies ofthe GOK. The ERSWEC calls for structural reforms to make WSS autonomous (including introducing commercial and private sector principles), mobilize investment for construction and rehabilitation, and enter into partnerships with community based organizations to expand services to the urban poor and rural communities. Vision 2030 identifies infrastructure development as a key enabler to help Kenya achieve its target of 10% and above annual growth. Within infrastructure development, water and sanitation investments in WSBs and the strengthening ofthe sector’s regulatory system constitute the main inputs into the strategy.
13. Millennium Development Goals (MDG). The proposed project will also support the Government’s efforts to achieve the MDGs. The direct project investments in rehabilitating and expanding WSS infrastructure and service provision including to informal settlements, as well as support to creating a sustainable service delivery framework, would contribute to the achievements ofMDG #7 i.e., integrate the principles ofsustainable development into country policies and programs, reverse loss ofenvironmental resources, reduce by halfthe proportion of people without sustainable access to safe drinking water, and achieve significant improvement in the lives ofslum dwellers.
14. Africa Action Plan (AAP). The proposed project will directly support the specific initiatives identified in the Bank’s Africa Action Plan (AAP). The project proposes to help close the infrastructure gap by significantly scaling up the Bank’s financing for WSS infrastructure in Kenya, focused on service expansion to align the effort to the MDG. At the same time, the project would help strengthen partnership at the country level through joint operations and coordination with development partners.
15. Linkages to Country Assistance Strategy (CAS). The project is consistent with the CAS Progress Report (2006) and is included in the Bank’s project pipeline. It is linked to the CAS outcomes as articulated in the CAS Progress Report. In particular, these relate to (i) reducing costs and improving reliability, (ii)enhancing water security, (iii)establishing conducive institutional and regulatory environment, and (iv) financial viability. The project will support these outcomes specifically through improving reliability through rehabilitation ofwater and sewerage infrastructure, enhancing water supply to unserved areas, strengthening sector institutions, supporting the sector regulator, and improving the financial sustainability ofWSBs and WSPs. Through supporting the institutional restructuring ofthe sector institutions, the project will also support the governance pillar ofthe CAS.
16. Supporting governance improvement. The project would help support the governance pillar in the CAS progress report. The Bank’s overall approach is to use the range ofits lending and on-lending instruments to support those in the Government, local communities, civil societies, the media, etc., who are making concerted and effective efforts in diminishing corruption. The Bank has emphasized selective engagement with ministries, agencies, and
4 institutions that champion good governance. In an environment where governance challenges are paramount, the Bank also strives to maintain the balance between dealing effectively with governance and corruption, and continuing to provide vital assistance to the poor. The Bank’s first phase support to the WSS sector reform is helping to consolidate governance improvements in the sector. This project, as the next phase ofsupport, would help consolidate institutional and governance reforms in particular in three WSBs. The full transfer ofmandate for service provision responsibility and accountability to WSBs forms a specific targeted result in governance in the CAS Progress Report.
11. PROJECT DESCRIPTION
A. Lending instrument
17. The project supports infrastructure development based on supporting a defined part ofthe overall investment plans ofAthi Water Services Board (AWSB), Coast Water Services Board (CWSB) and Lake Victoria North Water Services Board (LVNWSB). At the same time, the project supports the institutional strengthening and capacity building ofthe AWSB, CWSB, LVNWSB, the Water Services Regulatory Board (WSRB) and the Water Appeal Board (WAB). In keeping with the sector reform principle ofautonomous sector institutions, the three Water Services Boards (WSBs) will be accountable for any support given to them by the project. A Sector Investment Loan (SIL), with the three WSBs as implementing agencies, has been identified as the appropriate lending instrument. The project would have a life span offive years to allow for infrastructure development and adequate strengthening ofhuman and organizational capacities ofthe sector institutions supported.
B. Program objective and phases
18. The project will be a self-standing Sector Investment Loan (SIL). However, it forms part ofa phased support approach taken by the Bank to support the GOK’s overall sector reform effort which began in 2003 when the GOK commenced the implementation ofthe Water Act (2002). The first phase support, through the Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) - FY04, focused on supporting institutional restructuring in Nairobi. This aimed to demonstrate a sustainable institutional model, capable ofmanaging, operating and maintaining infrastructure investment. The proposed project will seek to scale up support to strengthen this institutional model in AWSB, CWSB and LVNWSB and move towards an infrastructure investment phase to support needed infrastructure investments to physically rehabilitate and expand WSS service provision. The project will support the expansion ofthese services to unserved and underserved areas, including informal settlements and urban slums.
C. Project development objective and key indicators
19. The development objectives ofthe project are to: (a) increase access to reliable, affordable and sustainable water supply and sanitation services; and (b) to improve the water and wastewater services in the areas served by AWSB, CWSB and LVNWSB. This will be achieved by (i)rehabilitating selected existing water production, transmission, storage and distribution
5 facilities and wastewater collection, treatment and disposal facilities; (ii)expanding piped water supply services to under-served areas through the extension ofprimary and secondary distribution pipes where required (this would include service expansion into urban slums / informal settlements4 through a balanced program including the involvement ofcommunities in decision making); and (iii)refining and strengthening the institutional structure, emphasizing on increasing accountability and transparency ofthe institutional, governance and management framework.
20. Progress towards achieving the project development objectives (PDO) will be monitored through a set ofindicators linked to the PDO (see Annex 3 for details ofthe results framework and monitoring). These include:
(i)Percentage ofWSP project operational areas with coverage ofsafe water;
(ii)Percentage ofWSP project operational areas with coverage ofsafe sewerage or sanitation access;
(iii)Percentage ofpeople rating the services provided by WSPs in the project area as satisfactory or better;
(iv) Degree ofoperation and maintenance (O&M) cost coverage ofWSPs and WSBs.
21. The first two indicators aim to evaluate the impact ofproject intervention in increasing access to safe water and sanitation and the last two aim to evaluate the quality ofthe services provided and the degree to which the service providers are viable and able to provide services on a long term sustained basis.
D. Project components
22. Alignment of components to sector institutional structures. The project will support the sector reform and the associated sector institutional setup through water, wastewater and sanitation, and institutional strengthening activities. The water, wastewater and sanitation activities will focus on improving and expanding reliable, sustainable and affordable safe water supply and wastewater services to consumers. At the same time, the rehabilitation of deteriorated wastewater treatment infrastructure and construction offacilities would result in overall environmental benefits. Institutional strengthening activities will focus on strengthening the service delivery framework, governance and transparency, and monitoring and evaluation. The project’s implementation will be carried out by the permanent sector institutions, using sector reporting and monitoring tools as much as possible5. As such its components will be
Intervention in informal settlements would be guided by policies providing for operation guidelines, amongst others, in community and supply chain engagement to include mapping ofthe poor, campaigns and community engagement processes, management ofthe community sub-project cycle, and post-construction arrangements for management, maintenance, training and capacity building support. These are being prepared by the WSBs with the support ofWSP-AF. This is a principal tenet ofthe Bank’s support to the sector reform (with sector institution strengthening as an ongoing theme) and is aligned with the common principles and arrangements for development partner support to the sector as envisioned in the Partnership Principle documents undertaken by the GOK and development partners.
6 designed to align with sector implementation, reporting and accountability structures i.e., the project would be delineated in the first instance along the lines ofautonomous sector institutions.
23. Project components. The project would have three major components: (1) support to the Athi Water Services Board (including limited complementary support to the Water Sector Regulatory Board and the Water Appeal Board6 through technical assistance, goods and works); (2) support to the Coast Water Services Board; and (3) support to the Lake Victoria North Water Services Board. These are summarized below. Within each component, there are two main subcomponents for water and sewerage infrastructure rehabilitation and expansion that are focused on increasing the access ofsafe water and sanitation services to the beneficiaries (directly linked to the project contribution to the GOK sector coverage targets per para. 4). A hrther subcomponent ofinstitutional strengthening ofWSBs and WSPs is included under each component and is focused on the quality, reliability, affordability and sustainability of service provision to beneficiaries and the long term viability and sustainability ofservice provision institutions. Included under the institutional strengthening subcomponent is limited support to operational costs ofnew WSPs to cover cost ofelectricity, chemicals etc.
24. Component I. Support to the Athi Water Services Board (including technical assistance support to the Water Services Regulatory Board and the Water Appeal Board) - US$71.5m (IDA US$65.99m). This will include:
(a) the rehabilitation and expansion ofexisting water supply systems including transmission pipelines, water treatment works, storage, water distribution networks, boreholes; construction ofwater treatment works in Nairobi and in selected small towns; and extension ofwater distribution networks and metering, including expansion ofservices to informal settlements and provision ofmeters, accessories and operational equipment to Nairobi City Water and Sewerage Company (NWSC);
(b) the rehabilitation and expansion ofsewerage networks and sewage treatment facilities, trunk sewers and extension ofexisting networks;
supporting selected equipment and activities aimed at strengthening the commercial, financial and technical operations at AWSB and WSPs; technical assistance for M&E, engineering, financial, legal, assets valuation, audits, informal settlements WSS program, communications, independent assessments ofthe institutional framework; supporting programs to increase oversight and transparency of service delivery; training and capacity building; supporting the implementation ofenvironmental and social safeguards (as per the ESMF and RPF), supporting the operational costs ofsmall WSPs for electricity, chemicals and consumables; supporting the operationalization and strengthening ofthe Water Services Regulatory Board (WSRB) and the Water Appeal Board (WAB) through provision ofworks, goods, training and technical assistance services; and supporting NWSC through the provision ofwater meters, accessories and other operational equipment.
Support to WAB and WSRB will be small and limited. These supports are complementary to a more comprehensive GOK strengthening program supported by other development partner (e.g., WSRB receives key support from GTZ).
7 25. Component 2. Support to the Coast Water Services Board - US$45.0m (IDA US$43.53m). This will include:
(a) the rehabilitation and expansion ofexisting water supply systems including transmission pipelines, water treatment works, storage, water distribution networks, boreholes; construction ofwater treatment works in selected small towns; and extension ofwater distribution networks and metering, including expansion ofservices to informal settlements;
(b) the rehabilitation and expansion ofsewerage networks and sewage treatment facilities, and extension ofexisting networks;
(c) supporting selected equipment and activities aimed at strengthening the commercial, financial and technical operations at CWSB and WSPs; technical assistance for M&E, engineering, financial, legal, assets valuation, audits, informal settlements WSS program, communications, independent assessments ofthe institutional framework; supporting programs to increase oversight and transparency ofservice delivery; training and capacity building; supporting the implementation ofenvironmental and social safeguards (as per the ESMF and RPF); and supporting the operational costs ofsmall WSPs for electricity, chemicals and consumables;
(d) preparing tender documents, designing and supervising the works; and
(e) rehabilitating, extending and constructing new wastewater and sanitation facilities.
26. Component 3. Support to the Lake Victoria North Water Services Board - US$42.5m (IDA US$40.48m). This will include:
(a) the rehabilitation and expansion of existing water supply systems including transmission pipelines, water treatment works, storage, water distribution networks, boreholes; construction ofwater treatment works in selected towns and rural clusters; and extension ofwater distribution networks and metering, including expansion ofservices to informal settlements;
(b) the rehabilitation and expansion ofsewerage networks and sewage treatment facilities; extension ofexisting networks; the construction ofsewerage systems in selected small towns; on-plot sanitation; and hygiene campaigns;
(c) supporting selected equipment and activities aimed at strengthening the commercial, financial and technical operations at LVNWSB and WSPs; technical assistance for M&E, engineering, financial, legal, assets valuation, audits, informal settlements WSS program, communications, independent assessments ofthe institutional framework; supporting programs to increase oversight and transparency of service delivery; training and capacity building; supporting the implementation ofenvironmental and social safeguards (as per
8 the ESMF and RPF); and supporting the operational costs ofsmall WSPs for electricity, chemicals and consumables;
(d) preparing tender documents, designing and supervising the works;
(e) rehabilitating, extending and constructing new wastewater and sanitation facilities.
E. Lessons learned and reflected in the project design
27. The Project is consistent with lessons learned from past Bank WSS projects in Nairobi, Mombasa and in the region: . Major investments in the WSS sector are likely to be unsustainable without a strong institutional development to create an autonomous and dedicated service delivery framework where investments and revenue are protected for use in maintaining and improving the services. This is a lesson from the Third Nairobi Water Supply and Sanitation Project (see project Implementation Completion Report, Cr. 206O-KEy Document No. 18708 dated December 17, 1998) which led to the overall unsatisfactory rating ofthe project. The current phased approach to support the sector reform is a direct measure to incorporate this lesson. Specific implementation lessons learnt under the Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) - FY04 are described in Annex 1 and these are incorporated into the principles and premises governing the WaSSP project as summarized in para. 35. . There should be an effective champion. Leadership for sector reform has been earnestly taken on board by the Ministry ofWater and Irrigation (MWI), which is spearheading the implementation ofthe Water Act (2002). . Project should be compatible with and complementary to overall Government activities. Ownership and commitment are obtained by directly supporting the GOK’s implementation of(i) the Water Act (2002), and (ii)sector structural reforms outlined in the GOK’s Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC). Project design and implementation would be aligned with sector implementation and accountability structures. . Comprehensive sector planning and coordination provide outcomes in service delivery (e.g., Uganda, Ghana, and Senegal). The investment plans ofthe WSBs supported by the project form part ofthe GOK overall sector wide investment plans. The adherence to the agreed Partnership Principles entered into by the GOK and development partners would help ensure that the project is continuously coordinated and harmonized with the overall GOK sector development program. WSS operational autonomy is critical for success. The institutional framework under the Water Act (2002) provides for autonomy ofsector institutions and operations. The WSBs and WSPs would be legal entities formed under specific legal provisions (e.g., the Water Act, Companies Act, Cooperative Societies Act, etc.), the relationships between them governed by transparent contracts and their operations ‘ring-fenced’ . Strong social accountability mechanisms helps to improve institutional accountability, governance and transparency. The project would promote social accountability mechanisms and transparent systems within and between stakeholders. The contracts
9 between sector institutions Le., technical and financial audits ofthe Service Provision Agreements between WSBs and WSPs. The results ofthe audits would be made public. All project financial and physical progress information would be made public in accessible form. The project would partner with efforts ofdevelopment partners and NGOs working with consumer groups and communities to encourage independent oversight ofservice provision. Comprehensive communications is critical for success. The project will include a significant communications program aimed at building wide stakeholder support and consensus for the water sector reform. Communications should include decision makers and political leaders and be continuous.
F. Alternatives considered and reasons for rejection
28. Country-wide investment project. The institutional framework pioneered by the Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) could in theory lead to a scaling up ofsupport to all the WSBs in the country. This was found not feasible given the differences between the WSBs coupled with the comparative advantage ofthe Bank in more urbanized WSS settings. An attempt to support all seven WSBs would also preclude the ability to align the project implementation arrangements with the institutional autonomy espoused by the sector reform by necessitating in practice a centralized implementing arrangement that does not match the mandates ofWSBs as the autonomous principle accountability units for infrastructure development. A country-wide Sector Investment Loan could also negatively affect the Bank’s oversight capability during implementation. Instead, support to the various WSBs is being given by the GOK and other development partners, through the support to various parts of the GOK’s Sector Investment Plan, with coordination provided by the GOK / development partners dialogues.
29. Alternative institutional arrangements. Related to (a) above, the placement ofthe project in a special purpose vehicle to simplify the implementation arrangement to one implementing agency was rejected on the basis that it would not be aligned with the sector institutional framework. This would also be against the spirit ofthe Partnership Principles between the GOK and development partners which call for the utilization ofthe appropriate and mandated sector institutions for implementation. The implementation responsibilities would therefore remain largely with the three WSBs.
30. Adaptable Program Loan (APL). An APL was considered during the initial phase of the Bank’s support to the sector reform (i.e,, for the Nairobi Water and Sewerage Institutional Restructuring Project - FY04) but was rejected at the time due partly to the pilot nature ofthe operation and the risks associated with the comprehensive sector reform where the risks were mainly unknown and untested. The phased support strategy consisting ofstand-alone interventions built on successes ofthe previous phase was envisioned and is being consistently maintained.
3 1. Multi-donor sector support operations (budget support). The GOK has launched the process towards achieving a Sector Wide Approach to Planning (SWAP) in the sector. This process has just started in late 2006 and it is acknowledged that it would take some time for the
10 process to be fully instituted. The sector is still in a transition stage with the sector reform in progress, sector institutions strengthening ongoing, and sector processes and procedures being developed and implemented. The sector conditions are not yet conducive for a fill budget support operation but this may be a consideration for the future. In the meantime, all GOK and development partners’ investments in the sector would be coordinated through the GOK’s common sector investment plan and GOK / development partners sector coordination and harmonization processes.
111. IMPLEMENTATION
A. Partnership arrangements
32. Project partnership with German and French development agencies. The German Development Agencies (KfW and DED) have been active in supporting LVNWSB since 2004. The German Government, the Bank and the GOK have a trilateral Joint Statement on Intent (signed in January 2004) to cooperate in supporting WSS in the Nzoia area. The Bank and AFD both have separate projects supporting AWSB since 2004 and plan to support CWSB. To firther develop close cooperation, joint discussions and missions which have been practiced over the last several years, the German Development Agencies (KfW, DED and GTZ), the AFD, and the Bank will pursue the strategy ofsupporting the AWSB, CWSB and LVNWSB through their projects in a parallel manner. The Bank project will support the AWSB, CWSB and LVNWSB as well as provide limited support to the WSRB and WAB. In the Nzoia area, the Bank will support the LVNWSB mainly by articipating in the financing ofPhase I11 ofthe overall KfW investment program in LVNWSBr: . In the Mombasa and Coastal region, the Bank and AFD are supporting in parallel the preparation of their respective projects. It is proposed that the AFD project will focus on supporting CWSB in the Mombasa city areas, whilst the Bank project will focus on supporting CWSB in any remaining activities in Mombasa as well as in other CWSB areas. All investments would be coordinated and based on supporting a part ofthe overall investment plans ofthe AWSB, CWSB and LVNWSB. The estimated costs ofthe parallel projects (including ongoing projects) are summarized in Table 1, During implementation, a strategy ofjoint implementation review missions, coordinated monitoring (which is harmonized as much as possible) and continuous discussions are expected to be instituted. It is expected that the WSP-AF will join the implementation team to provide support in several areas where they have comparative advantage e.g., informal settlements.
KfW’s technical studies and other project preparation activities would be utilized in part by WaSSIP.
11 Table 1: Ongoing and Proposed Development Partner Support (US$m)
+Including support to WSRB and WAB of approx USSO. 75m each * *Tentativefigure. AFDproject to support CWSB is under preparation, with preparation grant committed and ongoing. *++US$ Equivalent of €30m which is already committed and ongoing towards the Nairobi Water & Sewerage Emergency Physical Investment Project (NWSEPIP) ++**US$Equivalent of €58 2m which is already committed and ongoing towards Phase 1 and 2 of its Water Sector Development Program (WSDP)
33. Project fit into the overall GOK sector program. The project will support a portion of the overall investment plans ofAWSB, CWSB and LVNWSB. The overall investment plans in turn feed the overall GOK Sector Investment Plan (SIP) which forms the common platform through which all development partners envisage to provide their respective support to the sector. There is an ongoing opportunity for potential interested development partners and other financiers to contribute to other parts ofthe investment and business plans ofthe WSBs. Such an opportunity, if eventually realized, would provide another practical avenue for enhancing development partners cooperation and harmonization. The Bank will continue to maintain the ongoing effort to keep other development partners e.g., the Japanese development agencies, the EIB, etc. informed.
34. Sector level partnership. At the sector-wide level, the Bank is an active participant of the development partners sector working group (the Water and Sanitation Technology Group - WSTG) ', The WSTG, which meets periodically, provides the forum for discussions, coordination, cooperation and information exchange. There are periodic meetings between the GOK and the WSTG members. WSTG members and the GOK have largely signed up to the Partnership Principles, a non-binding set ofprinciples encouraging a common platform for development partner activities in the sector and aimed at continuously enhancing harmonization. This goes hand-in-hand with the GOK's launch ofthe process towards developing and implementing the SWAP in the sector. The Bank and other development partners expect to actively participate in the SWAP process, including the annual GOK / development partners Joint Sector Reviews (JSRs) which have been started as of2006. Coordination between other sectors such as health and education would occur at the inter-Ministry level. The Joint Sector Reviews provide a platform where multi-sector issues are discussed and addressed with the participation ofstakeholders from other sectors.
* Comprising (but not restricted to) development partners generally active in the sector, including the relevant development agencies of Germany, France, Austria, Japan, Sweden, the Netherlands, the UK, the US, Denmark, Canada and Italy, as well as multilateral agencies such as the AfDB, the World Bank, the Water and Sanitation Program - Africa, the Public Private Infrastructure Advisory Facility (PPIAF), UN-Habitat, UNICEF, UNDP and the European Union.
12 B. Institutional and implementation arrangements
35. Principles and premises governing the project. The project will be governed by a set ofprinciples and premises to ensure its alignment and consistency to a phased-support approach ofthe Bank in supporting a part ofthe wider sector reform process that is also supported by other development partners. These are discussed in Annex 15 and include:
0 Consistency and interlinkages between phases, in particular building upon the achievements ofNWSIRP in the areas of (i)conformance with and adherence to the provisions ofthe Transfer Plan, (ii)Framework Agreements governing service provision, (iii)the governance structure ofWSBs and WSPs, and (iv) governance, transparency and accountability in operations; 0 Proper sequencing ofsupport amongst WSBs and WSPs, in particular focusing on institutional strengthening prior to infrastructure investments (e.g., initial project activities in CWSB, which has not yet benefited from institutional stren&hening support, will focus on institutional strengthening); 0 Consistency with sector legislations; 0 Flexibility during implementation to support the overall GOK sector program; and 0 Coordination with development partners.
36. Project implementation by sector institutions. No special purpose project implementation units or agencies will be utilized - the project will be implemented principally through the appropriate existing sector institutions in line with the sector service delivery framework and respecting the autonomy and mandates ofthe institutions. Institutional strengthening ofsector institutions would form one objective ofthe project and support to this end would be provided where necessary. The project will, as much as possible, utilize the sector reporting and monitoring mechanisms with necessary oversight and safeguards to be agreed with the GOK, in particular in the areas oftransparency, governance and risk management.
37. Implementing agencies. There would be three implementing agencies Le., AWSB, CWSB and LVNWSB. It is expected that the bulk ofthe project investments would support the investment program ofthe WSBs as developedowner ofthe WSS assets. WSPs may also receive limited technical assistance and small working capital support but these would be channeled through the respective WSBs. WSBs may also delegate the execution ofsome oftheir mandates to their WSPs. As a practical measure, the small support expected to be provided to the WSRB and WAB would be implemented through the AWSB. In all cases, the WSBs remain the principal accountability units for the project. They will be responsible for financial, procurement and physical monitoring reports on activities implemented by them. While each implementing agency would implement their own component ofthe project, AWSB, CWSB and LVNWSB have set up a Project Coordination Team (PCT) that will periodically meet to (i) provide overall project coordination, (ii)ensure timely submission ofproject reports, and (iii) coordinate project activities, exchange information, share experiences and technical expertise. AWSB will provide the secretariat for the PCT and the team will come under the oversight ofthe respective Chief Executive Officers ofAWSB, CWSB and LVNWSB.
13 38. AWSB as procuring agent for WSFU3 and WAB. It is expected that the support to the WSRB and WAB would be in the form ofgrants and would be executed by AWSB. In order to respect the autonomy of sector institutions, the decision making for these subcomponents should lie with the WSRB and WAB respectively. Specific arrangements and mechanisms to ensure the autonomy ofWAB and WSRB from AWSB will be agreed prior to the implementation of support activities to WSRB and WAB'. The AWSB would act in a narrow capacity and strictly as the procuring agent ofthe WSRB and WAB. Separate grant agreements (or similar agreements) to these effects would be expected between AWSB and these two agencies.
39. Proposed agreements governing the project. The International Development Association (IDA) and the Republic ofKenya would enter into a Financing Agreement. It is expected that the GOK would pass the proceeds ofthe project credit to the WSBs mainly as credit and a small amount ofgrant (see para. 40). In line with the mandates ofthe WSBs and WSPs as autonomous corporate bodies with borrowing capacities, the GOK will enter into separate subsidiary credit / grant agreements with AWSB, CWSB and LVNWSB. AWSB, CWSB and LVNWSB will enter into separate Project Agreements with the Bank. In cases where WSPs are to be supported by the project, a Utility Provision Agreement (similar to the subsidiary credit / grant agreements) would be entered into between the WSB and the WSP stipulating the terms and conditions on how the support would be provided (including the WSP's participation in the procurement process) and how working capital assets, if any, are to be passed to the WSP'O. A model agreement between WSBs and supported WSPs will be agreed in advanced.
40. Funds flow and onlending. All external funds for the project will be made available to GOK. Funds earmarked for the support ofWSRB and WAB will be passed to AWSB as a grant. Other project funds will be on-lent to each WSB in local currencies at an interest rate of 1.5% of the funds drawn down. Principal repayment will commence in the sixth year onwards for a total of 15 years. The implementing agencies will contribute a portion ofthe project costs not provided for from the project - principally to be sourced from ongoing water and sewerage operations. Any proceeds passed on by WSBs to support WSPs, WSRB or WAB would be on terms and conditions no more onerous than that received by the WSB.
41, Accounting, financial reporting and auditing. AWSB's financial management systems have been strengthened during the implementation ofthe ongoing Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP). These are expected to be improved during the project. CWSB and LVNWSB will also benefit from the sharing ofexperiences amongst the three implementing agencies through the Project Coordination Team (PCT). Financial Management manuals and guidelines, and quarterly un-audited interim financial reporting (IFR) arrangements and formats have been developed. Measures for the strengthening of accounting, reporting and auditing hnctions ofthe implementing agencies are described further in Section 1V.C and Annex 7.
9 The Bank implementation review team would have a direct mechanism for dialogue, discussions and implementation review with WSRB and WAB respectively. loThe WSB remains the principal implementation / procurement and approval agency.
14 42. Conformance to sector institutional framework. The conformance ofthe implementation arrangements with the sector institutional framework is demonstrated in Annex 6. The relationships between sector institutions (MWI, WSRB, WAB, WSTF, WSBs and WSPs) are defined in a series ofdocuments (Acts, licenses, agreements) that constitute the overall framework for the provision ofWSS services in Kenya. These documents provide for the (i) transparency ofroles and responsibilities; (ii)separation between policy making, regulation, asset ownership / control and operations; and (iii)autonomy ofservice delivery institutions, These key premises are embodied in the Water Act (2002) which is being supported by the project. The legal constitution and construct ofthe sector institutions and the service delivery framework to be supported by the project are in place.
43. WSRB has issued licenses to all WSBs in Kenya, including AWSB, CWSB and LVNWSB. AWSB, CWSB and LVNWSB have assumed ownership or control ofWSS assets and liabilities (either through the transfer ofassets and liabilities from the MWI, or by entering into agreement(s) with the asset owners). AWSB, CWSB and LVNWSB have identified WSPs in the areas to be supported by the project. A WSP would be formed and a Service Provision Agreement (SPA) signed with the WSB before investments begin in the WSP area. The SPAs specify, amongst others, the terms and conditions under which services would be provided to customers, the assets will be operated and maintained, and how the WSP, WSB and other relevant sector institutions are to be remunerated (each party would be entitled to a percentage of revenue collected by the WSP). The SPAs and regulations issued by the WSRB will govern the responsibilities ofWSPs to provide services to customers as well as the responsibilities ofthe customers to pay for services provided.
44. Continuity for institutional strengthening and capacity building. There should be some assurances ofcontinuity ofthese structures, sector institutions’ business plans and key personnel (at least for a period until the capacity, stability and continuity ofthe institutions are established). Copies oflegal documents constituting the WSBs have been reviewed. The WSPs and SPAs will have been constituted and signed before project activities in any WSP areas commence.
C. Monitoring and evaluation of outcomeshesults
45. Project and sector monitoring and oversight. A series ofreports from the WSPs, WSBs and WSRB will allow for the specific monitoring and evaluation ofthe implementation of the project and achievement ofits objectives as well as broader monitoring and evaluation ofthe sector reform. These are summarized here (further details and description in Annex 3):
0 WSPs (per the provision ofthe SPAs with WSBs) will submit quarterly performance reports to the WSBs in accordance with the reporting requirements set by WSRB. 0 WSBs (as part oftheir reporting on the annual Performance Contracts with the GOK) will submit quarterly and annual performance reports to the Ministry ofWater and Irrigation (MWI). 0 To satisfy the fiduciary requirements ofproject fund disbursements, AWSB, CWSB and LVNWSB will each provide Interim Financial Reports (IFRs) on a quarterly basis to the Bank, KfW and AFD.
15 e All WSBs and WSPs are subject to annual statutory financial audits. e The WSRB has recently designed, piloted, and established a Water Regulation Information System (WARIS) software for data collection in order to monitor and regulate service provision. It is expected that reporting through the WARIS system will be in place within 2007. The WARIS system itself is not a necessity for adequate project monitoring but can serve to provide secondary data source and the sector status and background information. e The annual GOK / development partners Joint Sector Reviews (started in 2006) would produce, amongst others, annual sector reports and joint sector undertakings. These reports would serve to provide the sector status and background information.
46. Publication of information. All project monitoring~~ reports, including the results of audits, would be made public in accessible forms, including on the websites ofAWSB, CWSB and LVNWSB.
47. Project reviews and reports. Apart from normal project implementation review expected to be carried out jointly with development partners, a mid-term review ofproject performance will be carried out together with the implementing agencies, GOK and financing agencies about three years after project effectiveness. Prior to this review, AWSB, CWSB and LVNWSB will carry out an independent review ofthe project progress and implementation performance that would include proposals for immediate and/or longer term remedy ofissues, if needed. An Implementation Completion Report (ICR) will be prepared within six months ofthe project closing. AWSB, CWSB, LVNWSB and the GOK will contribute their own evaluation of the project.
D. Sustainability
48. Consistency with sector reform and legislations. The project undertakes to directly support the GOK’s sector reform agenda that will lead to a harmonized service delivery framework with service delivery institutions that are efficient and sustainable over the long term. The project is consistent with the sector reform which is underpinned by a comprehensive sector legislation - the Water Act (2002) and the associated sector reform plans Le., the Transfer Plan, National Water Services Strategy (NWSS), GOK’s Sector Investment Plan - that provides for a long term institutional set up.
49. GOK commitment and development partners support. The commitment shown by the GOK since 2003 in pursuing the sector reform objective (described in para. 8) provides the reassurance that the momentum gained and progress thus far ofthe reform process would not and cannot be easily turned back. Development partners’ support to the sector reform process, including the demonstrated partnership with the GOK in supporting the process towards a Sector-Wide Approach to Planning (SWAP) and the goodwill effort to implement the Partnership Principles hrther bolster the probability that the sector reform process would be successful and would lead to a sustained improvement in service provision.
50. Improved governance. Measures to promote good governance, including instituting good corporate governance in service delivery institutions, would promote sustainability. Sector
16 institutions have clear mandates and responsibilities underpinned by legislations andor contractual relationships. Adequate monitoring ofsector institution performance, with adequate oversight and transparent information sharing mechanism, would promote efficiency and reduce the incidence ofcorruption. This would ensure that development resources provided are used efficiently for the intended purposes and that resources generated from service delivery are safeguarded and utilized to the benefit ofthe sector and consumers.
5 1. Reduced risk of non-sustainabilitythrough phased support. This project follows from an earlier phase ofsupport where a model for sustainable service provision (including financial sustainability) was developed. This strategy enhances the chances ofsuccess at every phase and reduces the risk ofunsustainable investment.
E. Critical risks and possible controversial aspects
52. Governance, accountability and transparency. The Bank took a phased approach in supporting the sector reform effort and the long term GOK program in the sector. This has enabled the Bank to limit its exposure to the risks inherent in a sector that is undergoing such a comprehensive structural and institutional change. The successful institutional and implementation model built during the implementation ofthe Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) provides a strong foundation from which to scale up the design and implementation ofthe proposed project. This is augmented by lessons learned from NWSIRP and other development partner projects and experiences of cooperation and coordination with GOK and development partners during the first few years ofthe sector reform. Overall, this approach should minimize the key potential risks for the project.
53. The project supports both (i)the institutional strengthening at the sector level under the framework ofthe Water Act (2002), as well as (ii)infrastructure investment at the project level to expand access to safe and adequate water and sanitation and improve the quality ofservice provision. Annex 16 describes how the project incorporates governance risk-mitigation design elements aimed at both levels: (a) strengthening sector governance and enhancing the transparency and accountability ofsector institutions, particularly at the WSBs and WSPs; and (b) safeguarding project investment funds and ensuring that project funds are used in an efficient way for their intended purposes.
54. Nevertheless, the overall risk rating for the project is rated as substantial. Kenya is perceived to be a high-risk environment. The sector reform effort (whilst assessed to have proceeded a long way and cannot be reversed) is not expected to be fully completed until around 2008 / 2009. Sector institutions are still at various stages ofstrengthening and operationalization. The sector and institutional processes and procedures are new and would require some time to stabilize and become established.
55. Extensive effort was put on risk identification and mitigation during project preparation. Potential risks from all aspects ofproject implementation and operations were considered and mitigatingmeasures put in place to ensure that the project achieves its development objectives and targeted results. These potential risks together with measures to minimize them are described in the various annexes. Table 2 summarizes the key potential risks and mitigation
17 measures. It is expected that with the mitigation measures, the risks would be manageable during implementation. Table
Development Partner N Coordination. 0 Harmonization through GOK-Development Partners Partnership Potential lack of Principles; coordination 0 Full participation in the GOWdevelopment partners forum including (see Annex 1 and 17) in the GOK’s SWAP development process. Sector Institution Risks. M All sector institutions have been set up and operationalized; Risk of sector institutions 0 All contractual frameworks to be agreed and finalized in advance of being unable to perform investments; their mandates. 0 Regulator (WSRB) to be fully consulted throughout project (see Annex 6) -preparation. Financial management S 0 Institution of specific fiduciary safeguards (see section 1V.C); (FM) Risks. 0 Technical assistance to key WSPs for operational risk management (see Annex 7 for further assessments, development I strengthening of internal control information) structures in services delivery operations; 0 Adequate FM supervision and fiduciary assessment; 0 Strengthened linkages between physical outputs and project financial outcomes, including associated M&E functions; 0 Independent financial, performance and procurement audits and continuous independent audits; 0 Opening Designated Accounts as ‘local offshore accounts’ in local -commercial banks to expedite implementation. Procurement Risks. M 0 Provision for training and capacity building in the project; (see Annex 8, especially 0 Standard procurement documentation agreed in advance; Table A8.1 for further 0 Arrangements for public dissemination of procurement and contract information) information agreed in advance; 0 Arrangements for record keeping agreed in advance; 0 Adequate procurement review and supervision. Financial Sustainability M 0 For new liabilities under the project, repayment ability of AWSB, Risks. Viability of CWSB and LVNWSB carefully assessed during project preparation operations and ability to and on-lending provisions to WSBs designed appropriately. service debt obligations. (see Annex 9) Governance, S Audit and publication ofresults from (i)WSBs annual Performance Accountability and Contracts with GOK and (ii)Service Provision Agreements with Transparency Risks WSPs; potentially caused by poor 0 Incorporation of lessons from NWSIRP, including diverse Boards of incentive and Directors, competitively hired managements, use of Codes of Ethics accountability framework I Conduct; in service delivery 0 Implementation of a project communications plan; institutions and inadequate 0 Cooperation with other development partners to support (i) oversight mechanisms. independent social accountability structures e.g., WSP-AF’s work with consumers and the Citizen Report Card initiative, and (ii) (see Annex 16) sector efficiency monitoring e.g., Value for Money study incorporated into the annual joint sector reviews; 0 Publication of annual sector report and benchmarking expected from the WSRB. Services to informal S 0 Specific policies agreed to guide community engagement, design, yettlements. Inexperience construction and management of service provision in informal
18 settlements; Partnership with development partners, WSPs, NGOs/CBOs with experience on the subject, e.g., WSP-AF will provide technical advice support to AWSB, CWSB and LVNWSB. Implementation review missions expected to include WSP-AF’s participation.
Overall Risk Rating S
F. Loadcredit conditions and covenants
56. There are no conditions for Board. Other key Credit conditions and covenants are as follows:
Non standard Conditions for Effectiveness a) Each ofthe Project Implementing Entities has established an Institutional Risk Management Policy Framework satisfactory to the Association.
Standard Conditions for Effectiveness a) The Financing Agreement and Project Agreements (one each with AWSB, CWSB and LVNWSB) have been signed. b) The Subsidiary Agreements (SAs) between MOF and AWSB, CWSB and LVNWSB respectively, which are acceptable to the Bank, have been signed. c) The model Utility Provision Agreement between WSB and WSP, which is acceptable to the Bank, has been submitted. d) Legal Opinions satisfactory to the Association on the negotiated Legal Documents have been forwarded
Standard Dated Covenants a) AWSB, CWSB and LVNWSB to submit for review, not later than three months after the closing of their fiscal year, annual progress reports summarizing the progress in implementing the project and the evolution ofthe various performance indicators ofthe WSS service. b) AWSB, CWSB and LVNWSB to submit for review and make public, no later than six months after the closing oftheir fiscal year, the results ofthe annual financial and technical audits ofthe Service Provision Agreements with beneficiary WSPs. Such audits to be carried out at the end ofeach fiscal year. c) The Recipient and implementing agencies shall, no later than December 31,2010, carry out jointly with the Bank, a mid-term review (MTR) ofprogress made in carrying out the project and no later than 30 days after the completion ofthe MTR, commence implementation ofthe recommendations ofthe MTR. d) AWSB, CWSB and LVNWSB to submit for review, no later than six months after the closing oftheir fiscal year, audit reports oftheir financial statements and the project accounts.
Other Covenants a) AWSB, CWSB, LVNWSB and beneficiary WSPs to achieve a positive net income, excluding depreciation and amortization charges, by the end ofthe Project. b) AWSB, CWSB, LVNWSB and beneficiary WSPs shall not pay any cash dividends except out ofnet income and then only if immediately after giving effect to such action, their Current Ratio shall not be less than 1.2. c) The Recipient shall no later than June 30,2008 or any other date agreed with the Association, complete
19 the transfer ofthe management and operation ofwater services in accordance with the Transfer Plan d) The Recipient shall ensure that commencing from financial year 2008/09, its budgetary allocations for infrastructure development, and water and sanitation services in the districts located in the Project Implementing Entities’ Service Areas is indicated in its budget and channeled through the Project Implementing Entities.
IV. APPRAISAL SUMMARY
A. Economic and financial analyses
57. Economic Analysis. The cost-benefit analysis has been carried out separately for urban and rural areas, for the following mix ofschemes: urban schemes; rural schemes (riverhtream source; spring source; boreholes). The following benefits have been quantified: (i)value oftime saved in water collection; (ii)value ofincremental water produced and sold; (iii)savings in (existing) O&M recurring costs. The average capital cost per household (designed) is $131 for rural areas and $186 for urban areas. The average institutional and software cost per household (designed) is $30 for rural areas and $47 for urban areas. The above costs are extrapolated for the entire project, based on the envisaged phasing ofschemes. A wide variation in cost is expected across the urban and rural areas, depending on the extent ofrehabilitation and extension work ofthe existing water supply system and the number ofhouseholds which actually connect to the system.
58. Results. The proposed project would be justified on the basis of direct benefits to about 5.8 million persons at project start, rising to about 9.3 million at the end of the project period (rate of growth of population is assumed at 2% per annum). The economic rate of return has been estimated at about 20%. Sensitivity tests based on assessed risks indicate that the project is able to absorb negative impacts and still generate a positive ERR. The results ofthe analysis are summarized in hex9.
59. Financial Analysis. The financial forecasts for the Athi Water Services Board (AWSB), Coast Water Services Board (CWSB) and Lake Victoria Water Services Board (LVNWSB) were developed, assessed and analyzed. The analysis focused on the financial viability ofthe three water services boards (WSBs) and their abilities to service debts and contribute to the project- related costs. The implications ofthese in terms ofthe required conditions (amounts of borrowings, sustainable interest rates and terms, etc.) were taken into account in the financial structuring ofthe project. The operational viability within each ofthe main operational / WSP areas were also assessed using the financial models. Investment analyses were carried out for each WSB comparing ‘with’ and ‘without’ project scenarios to arrive at the estimates ofthe project’s financial internal rate ofreturn (FIRR). The results ofthe analysis are summarized in Annex 9.
60. Results. The most crucial factors are the ability ofAWSB, CWSB and LVNWSB and their WSPs to be financially sustainable and to service their debts. The financial projections for AWSB, CWSB and LVNWSB show sustainable operations with the three WSBs able to cover their operational and maintenance (O&M) costs over the period ofthe project. These statuses
20 can be expected to continue post-project. At the same time, based on the assumed terms and conditions ofinfrastructural lending to each WSB, they are likely to be able to service their debt. The assessment ofthe operations at the major operational / WSP areas also suggests that these operational areas / WSPs would be able to cover their (O&M) costs. As the prioritization and choice ofproject investments have been made considering factors other than the maximization of profitability alone (e.g., investments are also made in less profitable WSP areas) the magnitude ofthe project FIRR is a less crucial project determinant. Nevertheless, the overall project FIRR is positive and has been estimated at about 8%.
B. Technical
61. The proposed project involves the rehabilitation ofexisting water supply and sewerage infrastructure, the expansion ofthe same into high priority underserved and new areas (including expansion into informal settlements), and the provision ofnew water supply and sewerage systems. The project would provide goods and services for the strengthening ofAWSB, CWSB and LVNWSB, associated WSPs, and the Water Services Regulatory Board (WSRB) and the Water Appeal Board (WAB) to assist them in discharging their respective responsibilities adequately. The project would also provide, through the WSBs, operational costs support to new WSPs to assist them in meeting their operational costs for electricity, chemicals etc, and thereby improve performance. The rehabilitation ofwater supply and sanitation systems is appropriate as the aim is to reduce loses and increase water availability to consumers, and to improve environmental sanitation respectively. The expansion ofwater supply and sanitation systems will enable increased coverage and access and also assist in improving the sustainability ofthe operations.
62. The proposed investments in the jurisdiction ofthe AWSB area are based on feasibility studies and detailed designs that were carried out recently by competent consultants in conformity to international standards. The proposed investments in the CWSB areas are based on previous studies that identified priority areas, and these will be confirmed by consultants engaged to carryout feasibility studies and detailed designs' '. For the LVNWSB, the investments were scoped and packaged based on feasibility studies carried out recently12. All proposed investments were prepared in close consultation between the WSBs and the WSPs to ensure appropriateness and timeliness and focusing on improving and expanding reliable, sustainable and affordable water and sanitation services to consumers. Bidding documents for works and goods will be prepared in accordance with the Bank Guidelines and GOK procurement regulations. The works contracts will be packaged appropriately and carried out by competent contractors selected through a competitive procurement process. They will be supervised by competent consulting firms who will also be procured through a competitive process.
11 Supported in part by an AFD fhded feasibility studies consultancy. l2Supported by the KfW funded Water Sector Development Program.
21 C. Fiduciary
Financial Managemen t
63. The Financial Management (FM) Assessment Report for the project is attached as Annex 7. Project financial management arrangements take into account the overall country governance and PFM environment, as well as the project institutional arrangements. The project will use the three WSBs’ existing institutional FM systems, and operate through their regular structures. The project will support the strengthening of the three WSBs’ institutional FM capacity and the improvement of their FM performance including in key areas such as accounting, internal audit, management oversight, etc. It will also support improvement of accounting and financial management in selected WSPs (although WSPs will not receive and handle project funds per se).
64. Robust project FM arrangements have been designed. Detailed project cost estimated budgets have been prepared, and arrangements agreed for regular monitoring. A computerized accounting system is in place in AWSB, and is in an advanced stage of implementation in CWSB and LVNWSB. All three WSBs have professionally qualified accountants (CPAs) staffing key financial management and internal audit functions. IDA disbursements would be based on quarterly un-audited Interim Financial Reports (IFRs). Entity and project financial statements would be prepared in accordance with International Financial Reporting Standards. Annual audits would be carried out by the Kenya National Audit Office (KNAO). Audit of project finances would be carried out in conjunction with the entity audits ofthe three WSBs.
65. In addition, enhanced fiduciary safeguards have been put in place to respond to identified country-level corruption and weak governance risks. This includes the development and implementation of an institutional risk-based management policy framework. This would be documented in an Institutional Risk Management Policy (RMP) Manual. The Manual is expected to comprise a set ofpolicies, procedures and guidelines approved by the Board of each WSB. Development of the RMP Manuals for the three WSBs and adoption of action plans to implement the recommendations ofthe RMP Manuals is a condition ofeffectiveness.
66. Financial management risk is rated substantial. This takes into account the overall country governance and public financial management environment, as well as project-specific factors. It also takes into account that one ofthe implementing entities AWSB has a good track record ofperformance under the NWSIRP Project, and that the other two entities LVNWSB and CWSB are relatively new entities. The FM risk rating and related actions to address key risks would continue to be monitored and updated during project implementation.
Procurement
67. An in-depth procurement capacity assessment was carried out during Project Pre- appraisal and updated during Appraisal, which rates the procurement risk average due to the following: (i)the proposed executing agencies: AWSB, CWSB and LVNWSB created under the Water Act (2002) are operational and staffed; (ii)the procurement staff and some technical staff are knowledgeable in National procurement procedures and with the exception ofCWSB, staff ofthe two have had training in Bank procedures.
22 68. The procurement risks associated with the project proposed mitigation measures are detailed in Annex 8. The Bank will carry out enhanced procurement reviews during project supervisions. Training and capacity building will be provided through the Bank’s country office in Kenya and/or through regional training instituted (e.g., ESAMIin Arusha, Tanzania). These will be most relevant for CWSB and LVNWSB. Refresher courses and hands-on training will be required in all WSBs and these have been provided for in the project. Given the differing experiences ofthe three WSBs13 they will each benefit from the Project Coordination Team (PCT) that will periodically meet to exchange information, share experiences and technical expertise, and carry out cooperative ‘self-help’ activities (see para. 37).
69. Bank Kenya Portfolio Wide Enhanced Supervision. The project would benefit from and contribute to enhanced supervision for accountability and governance within the Bank’s Kenya Portfolio. As part ofthis portfolio-wide effort, a field-based governance adviser will be recruited for the Nairobi office to guide the Bank’s work on governance, and recruitment of additional field-based procurement and financial management specialists is in process. Cross- sectoral Operations Risk Mitigation Team will be established, to be chaired by the governance adviser, with a mandate to oversee risk-mitigation actions, advise task teams in the design and preparation ofprojects, share and disseminate information on risks, advise the country management team on strategy for mitigating governance risks, and interface with INT as necessary. In addition, the rolling intensive Country Program Review (CPR) process will sharpen its focus on corruption issues. Mechanisms to assess the impact ofsocial accountability and other governance measures in Bank-supported operations (e.g. , by over-sampling areas receiving support under the Arid Lands Project and Education SWAPS in the forthcoming governance surveys) will also be enhanced. In addition, the Bank is mainstreaming mechanisms to support impact assessments that would measure changes in poverty attributable specifically to a given project.
D. Social
70. Beneficiaries. The project would expand the support for the demonstrated sustainable institutional and management frameworks in Nairobi (Nairobi district’s population is about 2.9 million) to the fill jurisdiction ofAWSB, CWSB and LVNWSB (roughly 16 million or about half ofKenya’s p~pulation’~).Direct project infrastructure investment will commence in selected service provision areas within AWSB, CWSB and LVNWSB where about 7.3 million people reside.
71. Informal Settlements. The project will support the expansion ofWSS services to un- served and underserved areas, particularly in informal settlements and urban slums. Informal settlements constitute 40% to 60% ofthe population in major urban centers in Kenya. These settlements are characterized by poor water and sanitation service provision. Part ofthe GOK’s
l3AWSB has built up significant procurement capacity from the implementation of the ongoing Bank NWSIW project since 2004. LVNWSB has experience in procurement activities from the KfW supported Water Sector Development Program. l4AWSB - 7m, LVNWSB - 6Sm, CWSB - 2.5~compared to the total population in Kenya estimated at about 33 million.
23 aim to achieve the MDG for WSS involves fast-tracking affordable and sustainable access to safe water and sanitation in the settlements ofthe urban poor.
72. A recent Bank study into the urban slums in Nairobi’’ showed high incidence of economic poverty (about 73% percent ofthe slum dwellers fall below the poverty line), accompanied by horrible living conditions and other forms ofnon-economic poverty. Only 19% of slum dwellers have access to a supply ofpiped water in the form ofan in-house connection or yard tap, contrasting sharply with city-wide average ofabout 71-72%. Those without direct access to piped water have to obtain water from private vendors (kiosks) by the jerrycan often at a distance from their dwelling. Prices at these kiosks are very high, averaging Kshl3O/m3 (as opposed to the lowest block tariff charged by Nairobi City Water and Sewerage Company (NWSC) ofKshl2/m3.
73. Strategy for Service to Informal Settlements. Arrangements for improving services in informal settlements in the service areas ofAWSB, CWSB and LVNWSB were reviewed during project preparation. Given the requirement for complex planning and flexible execution with the consensus and support ofcommunities with differing characteristics, expansion into informal settlements will be guided by policies providing for operation guidelines, amongst others, in community and supply chain engagement to include mapping ofthe poor, campaigns and community engagement processes, management ofthe community sub-proj ect cycle, and post- construction arrangements for management, maintenance, training and capacity building support. Annex 18 provides an outline ofthe policies, issues, guiding lessons and experiences and intervention strategies in informal settlements.
74. AWSB, CWSB and LVNWSB would work with their respective WSPs to design proposals for the improvement ofservices in informal settlements. These proposals would include (i)appropriate packaging for detailed designs; (ii)civil works contract packages; and (iii) a provision for supervision ofthe works by the WSPs, to be developed in consultation with the support ofthe communities. The WSBs would also be responsible for procuring and contracting these proposals. Lessons from these activities will serve to inform other expansion efforts which will be implemented on a ‘rolling’ basis.
75. Communications Plan. The project will include a communications strategy that provides the broad framework that guides communication for this program and identifies the issues that need to be addressed to build understanding and generate support for the reforms and the project. The progress and results from the project will be made public. A comprehensive communication plan that will support a series ofcommunication and consensus building activities will be implemented over the period ofthe project. Under the communications plan, WSBs will carry out public information programs to key audience segments to increase awareness and transparency. A summary communication strategy is provided in Annex 17. The strategy sets out: (a) the objectives ofthe communications plans; (b) key implementation issues; (c) the identification ofkey stakeholders and audience segments; and (d) key messages to be addressed, tools and mechanisms that will be used to deliver the messages, including timeframes for implementation.
l5Kenya - Inside Informality: Poverty, Jobs, Housing and Services in Nairobi’s Slums, World Bank (2006)
24 E. Environment
76. A suitable legal framework exists for the management ofnatural resources in Kenya. The Water Act (2002), the Forest Act (2005), and the drafi National Lands Policy, coupled with the associated National Environment Management and Coordination Act (1999), underpin the framework governing the project. These important policy reforms cover institutional, financial and technical aspects and arrangements that are all aimed at ensuring environmentally and socially sustainable supply ofwater and sanitation services as well as sound socio-economic development for the present and hture populations within the areas ofAWSB, CWSB and LVNWSB in particular and the people ofKenya in general. It has however, been long recognized that Kenya’s natural resource base is vulnerable to natural shocks, mismanagement, serious degradation and severe floods. Thus, there is a need to pay particular attention to environmental and catchments management in general and water resources, forest and ecosystem management in particular. Safeguarding the integrity ofthe resource base is critical to achieving the development objective ofthis project.
77. The project will support the implementation ofthe Environment and Social Management Framework (ESMF). Recognizing the important aspects ofsustainability, water quality and quantity and ecosystem management, the project is designed to take all these important facts into consideration and to ensure that social and environmental matters are given the attention they deserve. The project will support the mainstreaming of the environment in the planning processes ofAWSB, CWSB and LVNWSB through the establishment ofenvironment units appropriately financed to ensure quality and proper management and monitoring of service delivery and source assurance. Specific and forward looking provisions will be supported under AWSB, CWSB and LVNWSB at several levels including catchments, sub-catchments to specific ecosystem management as well as management of sea outfalls, discharge ofwaste water and the rehabilitation ofrelated infrastructure.
78. Other aspects ofthe project that will support equitable management ofthe social and biophysical environment include: (a) participatory catchments management; (b) improved governance ofwater resources both within and outside water supply and sanitation schemes; (c) building institutional and human resources capacity for environmental management at the AWSB, CWSB and LVNWSB including WSPs; (d) providing one to two years oftechnical assistance to establish environment units, environment monitoring systems and quality assurance laboratories in AWSB, CWSB and LVNWSB and in collaboration with the relevant national water and ecosystem management related institutions, develop solutions to important ecosystems that are degraded; and (e) establishing environmental flow requirements where necessary.
F. Safeguard policies
79. WaSSIP triggers four safeguard policies: Environmental Assessment (OP/BP 4. Ol), Involuntary Resettlement (OP/BP 4.12), Indigenous Peoples (OP/BP 4.1 0) and International Waters (OP/BP 7.50). In order to address these safeguard policy issues and to ensure that implementation ofproject activities will be carried out in an environmentally and socially sustainable manner, the GOK prepared an Environment and Social Management Framework (ESMF), a Resettlement Policy Framework (RPF) and an Indigenous People Planning Framework (IPPF). The completed ESMF, RPF and IPPF have been disclosed by the GOK in-
25 country and the World Bank at the Bank’s Information Centre in Washington D.C. In order to satisfy requirements for International Waterways (OPBP 7-50), a notification ofthe commencement ofthe project has been sent to the parties ofthe Nile Basin Agreement.
80. Environmental Assessment (OP/BP 4.01). The project is designated as Category B which is appropriate and consistent with the provisions ofOPBP 4.01 as the project involves the rehabilitation and extension ofwater supply facilities, the rehabilitation and extension ofwaste water facilities; the rehabilitation ofsewerage and sewage facilities and institutional strengthening. The construction ofwater treatment works in selected small towns, the extension ofwater distribution networks and metering, the rehabilitation ofdeteriorated wastewater treatment and construction offacilities would result in overall environmental and social benefits with limited impact on individual assets.
8 1. Involuntary Resettlement (OP/BP 4.12). A Resettlement Policy Framework (RPF) document has been prepared under this project which sets criteria and guidelines to be followed if the resettlement policy is triggered in a WaSSIP sub-project. The RPF outlines the principles and procedures to be followed in the event that a sub-project ofWaSSIP leads to land acquisition, impact on assets and/or loss oflivelihoods.
82. Indigenous Peoples (OP/BP 4.10). The Sengwer, an indigenous group recognized by previous World Bank projects, has ancestral territory located within LVNWSBjurisdiction. The Sengwer have shown strong attachment and feelings ofownership ofthe water resources within this territory which affects some areas ofservice ofLVNWSB. During project preparation, the Bank’s social safeguards specialist met with a small group of Sengwer to: (i)discuss the project preparation process and provide an overview ofplanned activities, (ii)determine their views regarding the project, (iii)request input on the consultation process to be undertaken for the preparation ofan Indigenous Peoples Planning Framework (IPPF), and (iv) ensure the acceptability ofimplementing the IPPF ofWaSSIP in conjunction with those ofthe Western Kenya Community Driven Development and Flood Mitigation Project (WKCDDP) and the Natural Resources Management Project (NRMP) - two Bank projects also active in the area. During this meeting it was determined that the Sengwer would support the project provided appropriate benefits would be experienced by the Sengwer community. The Sengwer representatives provided input on where consultations should be held in order to ensure a large number ofSengwer have the opportunity to be informed, consulted, and participate in project benefits. AWSB and CWSB do not have activities within indigenous territories and therefore will not trigger the Indigenous Peoples policy.
83. Coordination between Bank Projects. As there are other Bank-funded projects (WKCDDP and NRMP) currently active in overlapping locations, cooperation and collaboration between these projects are critical for cohesion as well as ensuring the integrity and reputation of the Bank is not put at risk. In addition, the proposed Economic and Social Empowerment Project (ESEP) is also expected to include activities in similar locations. These Bank projects will coordinate a common plan and approach, in particular in addressing indigenous peoples’ and vulnerable groups’ issues in a coherent and collective manner.
26 84. Capacity building and remedial measures required for the ESMF, the RPF and the IPPF will be supported through the project. About US$4.8 million has been provisioned to support associated costs for resettlement planning and implementation. In addition, about US$2.0 million will be set aside for building the institutional and human resources capacities for managing the ESMF, IPPF and RPF. This includes funds to be allocated for the establishment of respective environmental units, their associated laboratories, training and environmental enhancement programs, workshops and seminars, the procurement oftechnical assistance for a period ofone to two years as well as the preparation of annual environmental and social audits which is in accordance with the National Environmental Management and Coordination Act of Kenya as well as OPBP 4.01. The service providers’ and other stakeholders training requirements for the implementation ofthe recommendations ofthe safeguard documents and for overall environmental and social management have also been factored into this budget. Consultations and training activities will also be funded to ensure the inclusive approach to implementation concerning indigenous peoples and vulnerable groups and to ensure ownership ofthe IPPF and RPF processes.
85. As the implementation ofResettlement Action Plans (RAPS),Indigenous Peoples Plans (IPPs) and Environmental Management Plans (EMPs) are critical to ensuring sustainable management and smooth implementation ofthe project, clarity on the institutional responsibilities for specific actions as well as monitoring their outcomes is crucial. The project will work with AWSB, CWSB and LVNWSB to ensure that the competent authorities are assigned the responsibility ofcarrying out such actions and most importantly ensuring ownership and the capacity to mainstream them as part oftheir core business.
86. No civil works activities, which trigger OP 4.12 or OP 4.10, will be implemented without first preparing and successhlly implementing a corresponding Resettlement Action Plan. No works will begin, which affects the ancestral territory ofindigenous peoples, without first preparing and implementing an Indigenous Peoples Plan which will include fiee, prior and informed consultation with the Sengwer community.
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.01) [XI [I Natural Habitats (OPBP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OPBP 4.1 1) [I [XI Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [XI [I Forests (OP/BP 4.36) [I [XI Safety ofDams (OPBP 4.37) [I [XI Projects in Disputed Areas (OPBP 7.60)* [I [XI Projects on International Waterways (OPBP 7.50) [XI [I
* By supporting the proposedproject, the Bank does not intend to prejudice the final determination of theparties’ claims on the disputed areas
27 G. Policy Exceptions and Readiness
87. This Project does not require exceptions from Bank policies. The procurement plan covering the first 18 months ofthe project has been prepared. The project General Procurement Notice (GPN) has been published and procurement processes for advanced activities underway. The institutional and legal structures ofAWSB, CWSB, LVNWSB, WAB and WSRB are in place. Key staff are in position. Counterpart hnding will be sourced primarily from the revenue ofthe ongoing water and sewerage operations. All conditions and covenants have been discussed and agreed upon with the implementing agencies and GOK to ensure a timely effectiveness and launch ofthe project implementation.
28 Annex 1: Country and Sector or Program Background KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Water Resources in Kenya
1. Water Resource is Scarce and Variable. On average, Kenya receives a renewable supply offreshwater resources ofless than 650m3 per capita per year. This makes it one ofthe most water scarce16 countries in the world (within the bottom 8% ofcountries), with significantly less water resources than its immediate neighbors. About 84% ofKenya’s physical areas consist ofarid and semi-arid lands (ASALs) with limited water resources (although about 25% ofthe population live in these areas). Annual rainfall varies widely between different regions, ranging from about 200mm in the ASALs areas to about 2,OOOmm in the mountainous areas. About two- thirds ofthe country receives less than 500mm ofrainfall every year. The temporal distribution ofrainfall also varies greatly, with most parts ofthe country experiencing two annual rainy seasons - March to May (long rains) and October to November (short rains). Year-by-year variation in rainfall has also been highly pronounced and figures from the last three decades show that Kenya experiences either a drought or a flood every third year. Adding to a somewhat precarious water resources picture is the fact that (i)most ofKenya’s surface water resources originate from localized catchments in five main mountains areas”, and (ii)about 54% of Kenya’s water resources are shared with neighboring countries. The water resources picture points to a need for efficient allocation, utilization and management ofthe available water resources, including in the drinking water supply sub-sector.
Historical Context
2. Service Delivery Arrangements were Fragmented. Prior to 2003, the delivery ofwater supply and sanitation (WSS) services in Kenya was fragmented into various regimes under the responsibilities ofdifferent agencies / organizations. These include the Ministry ofWater and Irrigation18 (MWI), a state corporation called the National Water Conservation and Pipeline Corporation (NWCPC) and local authorities. It was estimated that MWIoperated about 73 piped urban water systems serving a total of52,000 connections and 1.4 million people. MWI also operated about 555 rural water systems serving about 230,000 connections and 4.7 million people. NWCPC (a parastatal created in 1988 to take over operations from MWIin areas considered to be commercially viable) operated piped systems in 221 urban centers totaling 93,000 connections and serving about 2.2 million people. MWI and NWCPC did not operate wastewater systems, leaving these (where they exists) to local authorities. Ten gazetted local authorities (including Nairobi) operated their own WSS systems. It was only in these ten urban centers that the water supply and sewerage systems were operated by the same entity. Additionally, ‘self help’ groups operated about 355 piped water supply schemes in urban and rural areas serving about 2.3 million people, and about 10,000 stand-alone water points serving about 2.6 million people.
3 l6A country is characterized as water scarce if renewable supply offreshwater resources is less than 1,000m per 3 capita per year, and characterized as water stressed if renewable supply offreshwater resources is less than 1,700m er capita per year. p7 Mt. Kenya, Aberdares, Mau complex, Mt. Elgon and Cherangani. ’*At the time known as the Ministry ofWater Resources Management and Development.
29 3. Infrastructure was Deteriorating. During the 1980’s and 1990’s Kenya made large investments in water supply and sewerage production and treatment capacities, but these did not result in efficient and sustainable service distribution, due in a large part to poor management and maintenance ofurban and rural water supplies. Most customers received only intermittent service a few days per week or a few hours per day, exacerbated during drought conditions. Waste water services deteriorated due, amongst others, to inadequate collection, infrastructure disrepair and illegal diversion for irrigation. WSS operations were not transparent, unsustainable, insolvent and ill suited to respond to consumer needs. Service provision were caught in a cycle of(i) low coverage and unreliable service; (ii)high levels ofunaccounted for water (UfW) and ofunpaid bills; (iii)very poor financial management; (iv) insufficient tariff to cover operations and maintenance (O&M) costs; and (v) inadequate commercial management. By the late 1990’s there was widespread collapse ofinfrastructure due to under-investment in operations and maintenance.
4. Informal Settlements Worst Hit by Service Deterioration and Shortfall. WSS utilities were not able to provide the service to informal settlements, where the majority ofthe low income households are located. Yet, low income households account for 30-70% ofthe population in towns and cities and comprise the fastest growing segment ofthe urban population. The majority ofhouseholds in informal settlements rely on alternative water supply sources (mainly kiosks and private vendors) bought at a much higher cost compared to piped water. A recent survey” in Nairobi, Mombasa and Kisumu found that prices at kiosks are typically about KshlOO per m3, whilst one cubic meter ofpiped water typically costs between Kshl6 (Nairobi) to Ksh45 (Kisumu).
GOK Policy Responses
5. GOK’s Sector Targets are Challenging. The Government ofKenya’s (GOK) National Water Policy (1999) envisages 100% access to safe water for the country’s population by 2010. The MDG envisages access to safe water and improved sanitation of70% and 93% respectively by 2015. Current coverage figures are 50% and 80% respectively. The GOK realized that the achievement ofthe sectoral targets would not be possible without a comprehensive sector reform.
6. Formulation of New Sector Strategy was Comprehensive. The GOK recognized the need for comprehensive institutional reform and investments in the WSS sector in order to remove the bottlenecks to achieving its set poverty reduction objectives. During the past few years, the GOK engaged in a series ofefforts aimed at formulating a clear policy and strategy to address the fragmented institutional framework for service delivery as a first step to reform the sector. The National Policy on Water Resources Management and Development and the Country Strategy Paper for the Water Sector were drafted. Efforts were started to formulate a comprehensive and integrated new water supply and sanitation and water resources management legislation to replace the various existing legislations under which water and sanitation services were governed [including the Local Government Act (Cap 265) and the now repealed (old)
l9Citizen’s Report Card on Urban Water, Sanitation and Solid Waste Services in Kenya (May 2007)
30 Water Act (Cap 372), among others]. This culminated in the gazetting ofthe Water Act (2002), the implementation ofwhich commenced in 2003 and became the main sector reform vehicle.
The Implementation of Sector Reform
7. The Water Act (2002) was bold and far reaching. The Act called for a complete change ofthe sector landscape to create a comprehensively new institutional setup, aimed at harmonizing and streamlining the management ofwater resources and water supply and sewerage services. New institutions were set up, whilst existing institutions were either disbanded or had their mandates and responsibilities significantly changed. With regards to the WSS services, the Water Act (2002) calls for a uniform service delivery institutional framework to be put in place country-wide. It also clarifies the new mechanisms and the role ofthe various actors within that framework. A central tenet ofthe new service delivery framework is the separation of functions between each aspect ofservice delivery into autonomous functions - policy making, regulation, asset ownership / control and service delivery operations. The consequent creation oflegal entities mandated for these functions and the formalization of relationships between these functions is expected to reduce conflicts ofinterest and increase transparency and accountability. Annex 16 provides a more detailed description ofgovernance improvement in the sector and how the project envisages to support governance strengthening in project institutions and in the sector.
8. The sector reform is consistent with ERSWEC / PRSP. The sector reform is consistent with the GOK’s Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC), which forms the poverty reduction strategy ofthe GOK. Under the ERSWEC, the GOK has started implementing structural reforms to make water and sewerage services autonomous (including introducing commercial and private sector principles), mobilize investment for construction and rehabilitation, and enter into partnerships with community based organizations to expand services to the urban poor and rural communities.
9. WSS Service Responsibilities were assigned. Responsibility for infrastructure development and the provision ofservice now lies with new Water Services Boards (WSBs). The WSBs are mandated to contract out water delivery services to Water Service Providers (WSPs), which are legal entities contracted by WSBs to be responsible for service delivery operations. WSPs can be public or private entities dedicated to water service provision. A local government cannot assume directly the role ofa WSP but could form a legally separate WSP company. The Water Services Regulatory Board (WSRB) would regulate the service provisions and among others, would determine applications for licensing ofWSBs, advise on tariffs and levies, and determine and monitor service delivery standards. The WSRB reports to the Minister ofWater and Irrigation (MWI). The Water Act (2002) also provides for the creation ofa Water Services Trust Fund (WSTF) to assist in financing the provision ofwater services to areas without adequate water services and a Water Appeal Board (WAB) to be responsible for resolving and determining certain disputes. The Ministry ofWater and Irrigation (MWI) would be transformed into a policy making and oversight body. Consistent with these principles, the GOK (i)is reorganizing the Ministry of Water and Irrigation (MWI) into a body focused on policy issues, (ii)has established the WSRB, WSTF and WAB, and (iii)has established seven WSBs.
31 10. The sector reform transition process was provided for in the Water Act (2002). The implementation ofthe Water Act (2002) is ongoing and the various new institutions are at various stages ofoperationalization and strengthening. The Water Act (2002) recognized the need for a transition process. Amongst others, the Act provided for (i)the formulation ofa ‘Transfer Plan’ charting out the plan and rules for the transfer ofthe management and operations ofwater services to the WSBs, and (ii)the public consultation and formulation ofa National Water Services Strategy aimed at ensuring provision ofwater supply to all areas and the progressive extension ofwaste water services to all population centers in Kenya. The ‘Transfer Plan’ was published by MWIin August 2005 and detailed a series oftransitions culminating in the completion ofthe transfer ofthe management and operations ofwater services to the WSBs by June 30, 2008. The National Water Services Strategy (NWSS) has been gazetted.
11. GOK has demonstrated commitment to the sector reform. The implementation of such a comprehensive and far-reaching sector reform is challenging and not without unanticipated issues, set-backs and delays. However, the GOK has consistently demonstrated serious commitment to the reform process:
0 The WRSB is operational and key staff has been appointed. All WSBs have been issued licenses by the WSRB. Currently, WSRB is preparing tariff guidelines and models and guideline service provision agreements. The WSRB has developed and launched a country-wide management information and reporting system (WARIS). 0 The WSTF is operational and key staff has been appointed. It has started supporting WSS schemes in rural areas. It is fast tracking MDG-related targets for the urban poor with pilot activities. 0 The WAB has been established. It is in its early stages ofoperationalization. 0 All WSBs are operational and key staff have been appointed. The WSBs are at various stages ofoperationalization and strengthening. Business and investment plans are being or have been prepared and WSPs are being retained2’. There is now significant cross- fertilization oflessons and experience between WSBs, and coupled with common coordination and oversight provided by the higher level institutions (e.g., WSRB and MWI) common management and implementation frameworks are beginning to emerge in the sector. 0 The full scale restructuring ofthe MWI and the implementation ofthe ‘Transfer Plan’ is ongoing. It is acknowledged that this is a challenging and bold exercise, involving the challenges of transfening data and assets to WSBs, transferring required operational staff to new institutions, and solving remaining staff issues.
12. The MWIis starting to play the role ofpolicy making and overall oversight. As part ofa wider GOK initiative, annual performance contracts have been instituted between the GOK and MWI, within the departments ofMWI and between MWI and sector institutions. These are target based and subject to audits. MWIhas started the elaboration ofa wider sector information systems encompassing the various systems from the water resources, water supply and irrigation sub-sectors. .
2o As ofMay 2007, more than 80 WSPs have been appointed by the various WSBs.
32 13. The Government is developing a SWAP. The implementation ofa harmonized sector institutional management framework has provided a platform for integrating sector planning and the GOK to launch the process towards Sector Wide Approach to Planning (SWAP) in 2006. This effort begins the process ofharmonizing implementation mechanisms and improving the coordination ofresources to reduce transition costs. While the full development ofa SWAP process may take some time, the GOK, together with development partners, have embarked on a process aimed at establishing a common sector policy framework and strategies based on shared visions and priorities, a common sector program (with possibilities for the pooling ofresources) and common monitoring systems. Formal two-monthly GOK - development partners meetings and annual joint sector reviews have been instituted. A preliminary Sector Investment Plan (SIP), aimed at providing an integrated picture of the sector investment plan, has been developed and expected to be improved over time.
14. Development Partners have rallied around the sector reform. Development partners have generally welcomed the sector reform and the implementation ofthe Water Act (2002). Likewise, this process has provided a common platform for development partners to support a common sector framework, coordinate and cooperate amongst each other. Information sharing, coordination and cooperation has increased significantly since 2002 through an increasingly active development partners sector working groupz1 (the ‘Water and Sanitation Technology Group’ - WSTG) which generally meet on a two-monthly basis. The development partners have welcomed the GOK effort towards SWAP. A ‘Partnership Principles’ - a non-binding document aimed at promoting harmonization and consistency with the GOK SWAP process - has been signed by the GOK and many development partners”. At a practical level, development partners have begun to pool their comparative advantages by coordinating and cooperating amongst each other e.g., the joint SIDA/DANIDA effort to support the WSTG, the coordination between AFD and the World Bank in supporting WSS in Nairobi, the memorandum ofunderstanding for cooperation between the World Bank and the German Development Agencies, and the proposed parallel financing ofthis project between the World Bank, KfWand AFD.
Bank’s Support to the Sector Reform
15. The Bank has been continually active in the sector and responded positively to the sector reform. The World Bank has been a partner in development in Kenya for over 40 years, since independence. In the past three decades up to 2000, the Bank had invested in five water supply and sanitation projects in Nairobi and the Coastal Region. In the run up to the gazetting ofthe Water Act (2002) the Bank kept an active dialogue with the GOK on issues and solutions to be addressed and implemented to ensure sustainability, reliability and affordability ofthe WSS service, learning from the experience ofthe previous WSS project in Nairobi which closed in 1998. In late 2000, the Bank led (in collaboration with KfW, GTZ and AFD) a comprehensive
21 Comprising (but not restricted to) development partners generally active in the sector, including the relevant development agencies of Germany, France, Austria, Japan, Sweden, the Netherlands, the UK, the US, Denmark, Canada and Italy, as well as multilateral agencies such as the AfDB, the World Bank, the Water and Sanitation Program, PPIAF, UN-Habitat, UNICEF, UNDP and the European Union. 22 As of February 2007, these include Germany, France, Sweden, Denmark, the World Bank, UN-Habitat, UNICEF, Japan, the EU, Italy, UNDP, the UK, Canada, the Netherlands and Austria.
33 review ofthe WSS sector covering aspects such as demand assessment, pricing, decentralization, private sector participation, financing mechanisms and capacity building. The review was aimed in part to assist GOK in finalizing the Water Act that was under preparation at the time. The Bank played a key role in assisting GOK with the studies to investigate private sector participation options in Nairobi, Mombasa and the Coastal Region and Kisumu (financed by the Public-Private Infrastructure Advisory Facilities - PPIAF). The Bank also led a review ofwater resources management (WRM) issues jointly carried out with several financing agencies involved in the water sector. It is generally acknowledged among the development partners community that the Bank has the comparative advantage in the large urban centers - e.g. Nairobi and Mombasa - and its leadership is most appropriate for supporting WSS in these areas. In line with other development partners, the Bank supported the bold sector reform and the GOK’s efforts to implement the Water Act (2002).
16. The Bank took a phased approach to support the reform. Learning from past experience, the Bank and the GOK took a phased approach whereby in the first phase a transparent and sustainable service delivery framework is put in place in Nairobi. A similar framework could be expanded into other areas and form the basis for sustainable infrastructure investments in follow-up phases. The Bank’s ongoing Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) - FY04 - is focused on the early phase ofreform in Nairobi i.e., institutional restructuring - setting up new autonomous institutions, operationalizing and strengthening them. The NWSIRP design focused on institutional restructuring and premised consideration offuture investments on the creation ofa demonstrably sustainable and transparent service delivery framework.
17. The experience in the first phase has been positive. The experience ofNWSIRP has proven positive thus far, as summarized in Box A. 1.1. Other development partners, in supporting other sector institutions, have helped build up other parts ofthe overall institutional framework under the Water Act (2002). On the basis ofcontinued successful implementation of the first phase support, follow-on phases could now be considered. There is also the opportunity to cooperate with the GOK and development partners to ensure coordinated support which would cover the entire sector.
34 Box A.l.l
Summary of Progress under the Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP)
Under NWSIRP, the Athi Water Services Board (AWSB) contracted the Nairobi City Water and Sewerage Company (NWSC) to operate service provision in Nairobi City. To date, all necessary framework agreements governing the provision of services are in place and being implemented and adhered to. Operational finances are ring-fenced and annual statutory financial audits are being camed out for both NWSC and AWSB. AWSB and NWSC continue to strengthen their operational, commercial and financial functions. Transparency and governance has improved as a result ofa more traceable operating framework, the organization ofthe sector under legally accountable sector institutions (parastatals and companies), and the implementation ofgovernance training, broad stakeholder representation on institutional oversight mechanisms and individual performance contracts and Codes of Ethics.
A WSB: AWSB has engaged a complement ofstaff it considers to be adequate for its current responsibilities. Inline with the wider Government initiative, AWSB is subject to an annual target based Performance Contract signed with the Ministry ofWater and Irrigation (MWI). This contract is subject to audit and oversight ofthe Performance Contract secretariat in the Office ofthe President. AWSB has made its Performance Contract public and available on its website. AWSB has also cascaded the contract into a set on internal contracts committed to by departments and downwards. A program to sensitize the Directors to their roles and responsibilities, including governance training has been instituted. AWSB Directors have each signed an individual Code ofEthics. AWSB has formed a Corruption Prevention Committee and it is expected that Integrity Officers will be appointed in each district. AWSB is now in the process ofidentifying water service providers to operate services in the rest of its area ofjurisdiction. Financially, AWSB maintains a small operating surplus with the payments from NWSC sufficient to cover all operating expenses.
NWSC: NWSC’s responsibilities are bound by a Service Provision Agreement (SPA) with AWSB that is subject to regulatory oversight and technical and financial audit. The results of the annual audit are made public. NWSC has reorganized itself into five business centers in order to be closer to customers and enhance service delivery standards. Each region now has transitional performance contracts with the corporate headquarter. A state ofthe art and comprehensive billing, collection and customer management system that has been implemented, enhancing the traceability ofservice delivery operations. Revenue collections have increased by 60% between the start ofthe project and 2005/06 leading to full coverage ofoperating and maintenance (O&M) costs from revenue collections. NWSC is working with Transparency International Kenya to reduce corruption in the company operations. Anti-corruption campaigns have produced important reforms including: (i)dismissal of corrupt staff (75 have been dismissed on corruption and fraud grounds); (ii)improvement in hiring and terms ofservice; (iii)fixing the billing backlog and improved billing timeliness; (iv) installation ofmeters to identify illegal connections; (v) development ofa customer charter; (vi) making procurement process transparent, and (vii) having directors, management and staff sign performance contracts with GOK, Code ofEthics / Code ofConducts. An Integrity Assurance Officers (IAO) Committee has been established and approval given for the establishment ofa corruption hotline. Arrangements have been made with the Kenya Anticorruption Commission to train senior staff and IAOs on how to combat corruption in August 2006.
35 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Major Related Projects
Last Supervision Ratings Sector Issues Project Implementation Development Progress Objectives World Bank Supported Water supply and sanitation Nairobi Water and Sewerage S S Institutional Restructuring Project Water resource management Western Kenya CDD and Flood Initial PSR for project (catchments management and Mitigation Project PO74106 has not yet protection, floodplain management been created. and flood early warming systems) Water resource management Natural Resources Management Initial PSR for project (capacity strengthening ofWRMA Project PO95050 has not yet and investments in Upper Tana been created. Catchment) General agriculture, fishery, Kenya Arid Lands Resource forestry, animal production and Management Project Phase I1 other social services General agriculture, fishery, Kenya Arid Lands Resource Initial PSR for project forestry, animal production and Management Project Emergency P100762 has not yet other social services Additional Financing
S = Satisfactory; MS = Moderately Satisfa,ctory
tinuous, reliable and adequate water
36 (Japan International Cooperation Agency - Grant Aid) Rural water supply and sanitation, water association and Tana WSS in lower in lower Tana and Maseno Division infrastructure Phase 4 (AUSTRIA - Austrian Development Agency) Water supply and sanitation Water and Environmental Sanitation Program (UNICEF) WSS, solid waste and drainage improvement Lake Victoria Region Water and Sanitation Initiative
Water Resources Management, Environmental Mt. Kenya East Integrated Development Program Conservation, (IFAD) Policy Support Support to Kenya WSS Sector Reform Process (WSP AF)
37 Annex 3: Results Framework and Monitoring KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Results Framework
PDO Project Outcome Indicators Use of Project Outcome Information The development objectives ofthe a. 1 Percentage ofpopulation in a. To evaluate the impact of project project are to: (a) increase access to WSP project operational areas with intervention in increasing access to reliable, affordable and sustainable access to safe water safe water and sanitation. water supply and sanitation services; and (b) to improve the water and a.2 Percentage ofpopulation in wastewater services in the areas WSP project operational areas with served by AWSB, LVNWSB and access to adequate sewerage services CWSB. or safe sanitation.
b. 1 Percentage ofpeople in each of b. To evaluate the quality ofthe the WSP project operational areas services provided (including rating the services provided by sustainability, affordability and Water Service Providers (WSPs) as reliability) and the degree to which satisfactory or better the service providers are viable and able to provide services on a long b.2 Degree ofO&M cost coverage term sustained basis. ofproject supported WSPs and WSBs.
Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring 1.1 Length ofwater piping To evaluate infrastructure Water Services Board (including rehabilitated I extended improvement to ease ofaccess to technical assistance support to the 1.2 Length ofsewerage lines service Water Sector Regulatory Board and rehabilitated I extended the Water Appeal Board). 2.1 Increases in quantity ofwater To evaluate the ability of WSBs and billed / delivered by category WSPs to increase access to service 2.2 Increases in no. ofhouseholds provisions with water connections 2.3 Increases in the no. ofstandposts in informal settlements in Nairobi
3.1 Increase in collection efficiency To evaluate the sustainability of ofWSPs service provision by WSBs and 3.2 Operational and maintenance WSBs cost coverage ofWSPs and WSBs
4.1 Improved percentage water loss To evaluate the reliability ofservice in system (Unaccounted -for-Water provision by WSBs and WSPs - Urn) 4.2 Improved constancy ofwater supply
5.1 Annual statutory audits for To identify areas for strengthening WSBs demonstrating transparent of financial, commercial and
38 and accountable financial technical performance. management To ensure transparent and 5.2 Annual technical and financial accountable operations audits for Service Provision Agreements (SPAs) published on WSB website
6.1 Publication ofWater Regulation To demonstrate that WSRB is Information System (WARIS) by operational and carrying out its I WSRB critical functions 6.2 Publication oftariff guideline by I WSRB 6.3 Surveys ofparticipants and To gauge perception of stakeholders stakeholders on WAB claims and involved in any WAB cases on the dispute cases WAB’s performance Component 2: Support to the Coast 1.1 Length ofwater piping To evaluate infrastructure Water Services Board rehabilitated I extended improvement to ease ofaccess to 1.2 Length ofsewerage lines service rehabilitated I extended
2.1 Increases in quantity ofwater To evaluate the ability ofWSBs and billed I delivered by category WSPs to increase access to service 2.2 Increases in no. ofhouseholds provisions with water connections 2.3 Increases in the no. ofstandposts in informal settlements in Mombasa
3.1 Increase in collection efficiency To evaluate the sustainability of ofWSPs service provision by WSBs and 3.2 Operational and maintenance WSBs cost coverage ofWSPs and WSBs
4.1 Improved percentage water loss To evaluate the reliability ofservice in system (Unaccounted -for-Water provision by WSBs and WSPs - Ufw) 4.2 Improved constancy ofwater supply
5.1 Annual statutory audits for To identify areas for strengthening WSBs demonstrating transparent offinancial, commercial and and accountable financial technical performance. management To ensure transparent and 5.2 Annual technical and financial accountable operations audits for Service Provision Agreements (SPAs) published on WSB website
1.1 Length ofwater piping To evaluate infrastructure Victoria North Water Services rehabilitated I extended improvement to ease ofaccess to Board 1.2 Length ofsewerage lines service rehabilitated I extended
2.1 Increases in quantity ofwater To evaluate the ability ofWSBs and billed I delivered by category WSPs to increase access to service 2.2 Increases in no. ofhouseholds provisions with water connections
39 3.1 Increase in collection efficiency To evaluate the sustainability of ofWSPs service provision by WSBs and 3.2 Operational and maintenance WSBs cost coverage ofWSPs and WSBs
4.1 Improved percentage water loss To evaluate the reliability ofservice in system (Unaccounted -for-Water provision by WSBs and WSPs - Ufw) 4.2 Improved constancy ofwater supply
5.1 Annual statutory audits for To identify areas for strengthening WSBs demonstrating transparent offinancial, commercial and and accountable financial technical performance. management To ensure transparent and 5.2 Annual technical and financial accountable operations audits for Service Provision Agreements (SPAS) published on WSB website
Arranpements for results monitoring
1. Project and Sector Monitoring and Oversight. A series ofreports by the WSPs, WSBs and WSRB will allow for the specific monitoring and evaluation ofthe implementation ofthe project and achievement ofits objectives as well as broader monitoring and evaluation ofthe sector reform.
0 Water Services Providers (WSPs): WSPs (per the provision ofthe Service Provisions Agreements with WSBs) will submit quarterly performance report to WSBs in accordance with the reporting requirements set by WSRB. These reports will include the progress ofthe compliance with the SPA and other operational performance indicators. In WSP areas supported by the project, AWSB, CWSB and LVNWSB will ensure that the quarterly and annual financial and technical audits are carried out to provide an independent assessment ofthe WSP’s compliance with the SPA and the SPA / project outcome indicators. The key SPA indicators include, amongst others, water and effluent quality, metering, connections, transmission and distribution losses, bursts and repair time and system pressure, sales, collection efficiency. All WSPs are subject to annual statutory financial audits. 0 Water Services Boards (WSBs): WSBs (as part oftheir reporting on the annual Performance Contracts with the GOK) submit quarterly and annual performance reports to the Ministry ofWater and Irrigation (MWI). These reports on the performance targets agreed annually with the MWI. The report provides information on achievements with respect to various indicators, amongst others, financial (revenue, expenditure, billing, collection efficiency); service delivery and customer satisfaction; non-financial indicators (strategic planning, business process), operations (coverage, reliability, Unaccounted for Water -UFW, cost ofoperations) and dynamic indicators (training, building capacity), MWIevaluates the performance ofall state corporations on the basis ofannual targets and achievements. The Performance Contracts and associated reports are subject to the
40 oversight ofthe Performance Contract Secretariat in the Office ofthe President. An audit is performed annually by independent auditors appointed by the Secretariat. In addition, all WSBs are subject to annual statutory financial audits. 0 Water Services Regulatory Board (WSRB): The WSRB has recently designed, piloted, and established a Water Regulation Information System (WARIS) software for data collection in order to monitor and regulate service provision. The data will flow from each WSP to its respective WSB using specific format. The data will be analyzed and disseminated by the WSB as quarterly and annual sector reports, providing information on the overall sector performance as well as the performance ofeach WSP. The indicators designed in the WARIS software provide a comprehensive coverage ofthe water and sanitation sector issues, including financial (revenue collection, operating costs, operating ratio, cost recovery), commercial (water coverage, domestic and shared connections, communal water points, sanitation types and coverage, UFW, metering and billing ratio, collection efficiency, customer complaints), technical service levels (hrs. supplied, compliance with required quality) and personnel (staff per 1000 connections). It is expected that reporting through the WARIS system will be in place within 2007 (Nb. Once the WARIS system is fully operational and smoothly providing reliable information, it would form a powerful ‘one-stop’ tool for sector monitoring. However, recognizing that WARIS may take some time to become fully operational and reliable, the project will rely primarily on specific established sector institutional reporting and audit mechanisms for monitoring and evaluation. WARIS will function initially as a secondary M&E tool and its utilization as a primary monitoring tool will be reviewed during project implementation). 0 Ministry of Water and Irrigation (MWI): The annual GOK / development partner Joint Sector Reviews (started in 2006) would produce, amongst others, annual sector reports and joint sector undertakings. 0 Specific fiduciary reporting requirements: To satisfy the fiduciary requirements of project fund disbursements, AWSB, CWSB and LVNWSB will each provide Interim Financial Reports (IFRs) on a quarterly basis to the Bank, KfW and AFD. These would report on the implementation ofall the components ofthe project, in particular (i) implementation schedules updated by component and financing agency; (ii)commitment and disbursement by component and financing agency; and (iii)findings, recommendations, agreements reached, main issues and decisions sought.
Diagram A.3.1 shows the reporting/contractual relationships between the various sector and GOK institutions and the public.
2. Publication of information. All monitoring reports, including the results ofaudits, would be made public in accessible form. Various means will be utilized to accomplish the range ofinformation disclosure and dissemination activities ofAWSB, CWSB and LVNWSB. In order to provide a ‘one-stop’ venue for the accessing information by the public and other stakeholders, AWSB, CWSB and LVNWSB are each developing their own websites. All information to be disclosed will be made available through the respective websites, as well as other selected avenue(s).
41 3. Project reviews and reports. Apart from normal project implementation review expected to be carried out jointly with development partners, a mid-term review ofproject performance will be carried out together with the implementing agencies, GOK and financing agencies about three years after project effectiveness. Prior to this review, AWSB, CWSB and LVNWSB will carry out an independent review ofthe project progress and implementation performance that would include proposals for immediate and/or longer term remedy ofissues, if needed. An Implementation Completion Report (ICR) will be prepared within six months ofthe project closing. AWSB, CWSB, LVNWSB and the GOK will contribute their own evaluation of the project.
42 Diagram A.3.1: Reporting / contractual relationships between the various sector and GOK institutions and the public
Annual Sector Report & Joint GOK / Development Partner Joint Review Undertakings
APC Audit Reports for WAB- (Annual) 2 .s F
APCAudit T Reports for WSRB 24 .-c L ; E c__7i; APCAudit ' Reports for 1 WSB(Annua1) $ a
Water Services
Requiremertt Audited Financial Report (Annual)
LEGEND
-b Reporting and/or contractual relationshio icv> gg SPA Audit -> Reports (available to the public: 6 Report / Results (Quarter & Annual) Reports (generally not fa available to the public) I - I Water Service Provider I ,h PCS refers to the Performance Contract * L-----/ Secretariat at the Office of the President, (WSP) WSP Audited by which is responsible for the oversight and Statutory Financial audits of government performance Audited by StatUtOty Auditors (Annual) contracts Financial Auditor-
43
6 'G sss ¶ Ma= 0100 N 0.0 mC WNvI \o-\o ZG.23
$$ 00 ww mm 2 2 Annex 4: Detailed Project Description KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
The proposed project is targeted at investments on rehabilitation and expansion ofwater and sanitation infrastructure in each ofthe jurisdictions ofthe three water service boards (WSBs) - AWSB, CWSB and LVNWSB, and institutional strengthening ofthe three WSBs, the associated Water Service Providers (WSPs), and capacity building ofWater Services Regulatory Board (WSRB) and the Water Appeal Board (WAB). The components are as follows:
COMPONENT 1: SUPPORT TO THE ATHI WATER SERVICES BOARD SERVICE AREA (US$71,461,879).
1. This component is aimed at providing resources to Athi Water Services Board (AWSB) for the following sub components:
1.1 Rehabilitation and Extension of Water Supply Facilities (US$34,612,814). This sub- component supports: (i)the rehabilitation of existing water supply systems including transmission pipelines, water treatment works, storage, water distribution networks, boreholes; (ii)construction ofnew water treatment works in selected small towns; and (iii)extension of water distribution networks and metering. This sub-component is focused on improving and expanding reliable, sustainable and affordable safe water supply to consumers.
1.1.1 Rehabilitation of Water Supply Systems (US$4,463,817)
1.1.1.1 Nairobi (US$2,103,937). This intervention includes the strengthening (upgrading) of approximately 3.5 km ofthe city distribution system to larger diameter pipes as well as the replacement ofapproximately 1 1 km ofthe city distribution system especially the old residential estates, namely , General Waruini Street, Elderama Ravine Road, Makadara and Mbotela Estates. Old and or non-fbnctional water meters will also be replaced and unauthorized connections uncovered will be metered as part ofthis intervention. Pipe material to be used will be uPVC for diameters less than 400mm and steel for diameters 400mm and above. This sub component will also supply to Kibera informal settlement and Ruai, Githural and Garden Road Per-urban areas
1.1.1.2 Other towns (US$2,055,582). The rehabilitation ofexisting water supply systems will encompass the rehabilitation ofthe Komothai Water Supply Scheme within the area of jurisdiction ofthe Githunguri Water Services Provider. The scheme requires substantial rehabilitation to reservoirs, air valves and scour valve assemblies. Works include: Rehabilitation ofexisting networks in 3 towns; rehabilitation ofintake works in Wote; replace & repair damaged sections ofpipeline in Ruiru-Juja
1.1.1.3 Consultancy services for designs, preparation ofcontract documents and supervision ofworks. Nairobi (for 1.l. 1.1) - US$183,876; Other small towns (for 1.le 1.2) - US$120,422.
1.1.2 Construction of water treatment works and related works in small towns (US$6,427,017)
50 1.1.2.1 Works (US$5,677,143). This includes: (i)Komothai town: completion ofconstruction ofthe Water Treatment Works of Komothai town that was only partially completed during the initial implementation; (ii)Wote town: construction of water treatment and Intake Works, additional boreholes and storage, distribution system and a 225mm diameter raw water main, and (iii)Ruiru-Juia town: construction ofintake works, a raw water main (21km Raw and Clear Water Mains (600mm diameter)), additional storage (10,000 m3) and a new water treatment works.
1.1.2.2 Consultancy services for designs, preparation ofcontract documents and supervision ofworks (US$749,874)
1.1.3 Expansion of Water Distribution Network and Metering (US$23,721,980)
1.1.3.1 Nairobi (US$9,057,873). The extension ofthe water distribution network in Nairobi will encompass the construction of a new 3 15mm diameter uPVC main, approximately 5.8 km in length, in the Riverside area. This main will follow Riverside Drive, Ring Road and Kileleshwa Road. Works for Nairobi and its suburbs include:
(i) Construction ofa gravity main (850mm; 750mm; 600mm diameter) from Kiambu Reservoir to Kasarani and then Thika Road etc.; (ii) Extensions to Shauri Moyo and Maringo Estate suburbs.
1.1.3.2 Other Small towns (US$3,260,571).
(i)Komothai Town: works include extension ofthe existing water distribution network by approximately 78 km of uPVC pipes ranging between 50mm and 160mm in diameter. (ii)Wote Town: works include new distribution system as an extension ofthe existing system totaling approximately 15.4 km ofuPVC pipes ranging in diameter from 11 Omm to 160mm. (iii)Ruiru Town: works include a new distribution scheme ofapproximately 40 km in length. Pipe diameters vary between 50mm and 200mm in diameter and all pipes are to be uPVC.
1.1.3.3 Metering (US$181,429). Works includes supply and installation of6,000 domestic meters and 10 master meters for small towns.
1.1.3.4 Support to NWSC (US$2,000,000). Provision ofwater meters, spares and appurtenances and operational equipment to improve performance ofservice delivery
1.1.3.5 Consulting services (US$857,143). This is for design, preparation ofbidding documents and supervision ofworks in Nairobi (1.1.3.1). For the other small towns, cost is included under para. 1.1.3.2.
1.1.3.6 Extending Services to Informal Settlements (US$3,800,000).
51 1.1.3.7 Nairobi - Construction of additional raw water main (DN1000) from Mataara to Ngethu treatment works to enable attainment ofthe full delivery to capacity of465,000 m3/dayand to provide security offlow. (total US$6,564,965)
0 Works : US$6,078,671; 0 Consultancy services (supervision): US$486,293.
1.2 Rehabilitation and Extension of Wastewater and Sanitation Facilities (US$27,889,421). This sub-component provides support for (i)the rehabilitation of sewerage networks and sewage treatment facilities; extension of existing networks in Nairobi; (ii)construction of five sewerage systems in small towns (of less than 2,50Om3/d each); (iii)on-plot sanitation; and hygiene campaigns; and (iv) Rehabilitation of Kariobangi Sewerage Treatment Plant and reconstruction of Ngong River Trunk Sewer. This sub component is focused on improving treatment and disposal ofwastewater. The rehabilitation ofdeteriorated treatment facilities and construction of new facilities would result in overall environmental benefits.
1.2.I Works (US$25,538,089) includes thefollowing sub components:
1.2.1.1 Works in Nairobi to include (i)Implementation ofRuai and Gatharani Sewerage system which includes Ruiroka, Gatharani, North and Gatharani South systems; and (ii) Upgrading ofLavington and Riruta Sewers (US$16,214,286);
1.2.1.2 On-site sanitation and hygiene promotion for AWSB Area for construction ofVIP latrines - US$200,000 (includes primary and secondary schools);
1.2.1.3 Rehabilitation ofKariobangi sewage treatment plant and reconstruction ofNgong River trunk sewers (US$9,123,803).
1.2.2 Consulting services (US$2,351,332) for design and supervision activities: 1.2.2.1 Consulting services for 1.2.1.1 and 1.2.1.2 (US$1,621,428);
1.2.2.2 Consulting service for 1.2.1.3 (US$729,904).
1.3 Institutional Strengthening Program (US$8,959,643). This component is aimed establishing and reorienting the central sector organizations and strengthening capacities in designated areas oftheir sector leadership. The support includes operationalization and strengthening of (i)the Water Services Board - AWSB; (ii)new autonomous and ring fenced water and sewerage service provision companies for Ruiru-Juja, Wote, Kiambu, Ololaisser, Githunguri, Kajiado and Machakos; (iii)Strengthening ofthe Water Services Regulatory Board (WSRB); (iv) Water Appeal Board.(WAB); (v) technical assistance for M & E, engineering, financial management and analysis, legal, assets valuation, audits (including Project and SPA audits), informal settlements WSS program, communications, environmental monitoring, and independent assessments ofinstitutional framework, and MTR consultancy for the whole project; (vi) programs to increase oversight and transparency ofservice delivery including three customer satisfaction surveys; (vii) training and capacity building; (viii) support implementation
52 ofenvironmental management and social safeguards and resettlement policy framework; (ix) Project communication support; and (x) Institutional strengthening support to NWSC.
1.3.1 Support to Operationalization and Strengthening of A WSB (Approximate cost US$1,3 60,000 including contingencies).
1.3.1.1 Office refurbishment (US$lS,OOO): Includes rehabilitation and upgrading ofthree office premises and purchase ofadditional furniture;
1.3.1.2 Vehicles (US$185,000): Purchase ofvehicles for day to day office running and field operations;
1.3.1.3 Office Equipment (US$225,000): Purchase ofcomputers, photocopiers and communication equipment;
1.3.1.4 Technical Assistance (US$340,000): Involves procurement oftechnical assistance for M & E, engineering, financial, legal, assets valuation, audits (covering project and SPA audits), informal settlements WSS program, communications, environmental monitoring, and independent assessments ofinstitutional framework and MTR consultancy for the whole project; In addition, hiring of individual consultants (on the job functions - short term) for specific assignments such as Project Management, three customer satisfaction surveys, PPP Transactions, and Human Resource Development etc.;
1.3.1.5 Training and Capacity Building (US$300,000) (AWSB): Includes specific training courses, targeted workshops, and study tours for Board ofDirectors, Senior Management and staff ofAWSB;
1.3.1.6 Training and capacity Building (US$295,000) (NWSC): Includes specific training courses, targeted workshops, and study tours for Board ofDirectors, Senior Management and staff ofNWSC.
1.3.2 Support to Operationalization and Strengthening of autonomous and ring-fenced Water Services Providers (Approximate cost US$672,500 including contingencies).
1.3.2.1 Office rehabilitation and/or upgrading &JS$llO,OOO):Refurbishment ofoffice spaces, necessary partitioning (US$75,000) and purchase ofoffice furniture (US$35,000);
1.3.2.2 Vehicles &JS$315,000): Purchase ofvehicles for day to day office running and field operations;
1.3.2.3 Office Equipment (US$172,500): Purchase ofcomputers, photocopiers and communication equipment for WSPs;
1.3.2.4 Training and Capacity Building (US$75,000): Includes specific training courses, targeted workshops, and study tours for Board ofDirectors, Senior Management and staff of Water Service Providers.
53 1.3.3 Support to Operationalization and Strengthening of the Water Services Regulatoiy Board (Approximate cost US$750,000 including contingencies)
1.3.3.1 Technical Assistance (US$400,000): Involves procurement oftechnical assistance for: (a) Preparation ofRegulatory Tools; (b) Regular tariff reviews as specified in Service Provision Agreements.
1.3.3.2 Training and Capacity Building (US$200,000): Includes specific training courses, targeted workshops, and study tours for Board ofDirectors, Senior Management and staff of WSRB;
1.3.3.3 Goods (US$150,000): includes procurement ofvehicles, office equipment and firniture.
1.3.4 Support to Operationalization and Strengthening of the Water Appeal Board (Approximate cost is US$750,000 including contingencies)
1.3.4.1 Technical Assistance (US$200,000): Involves the procurement ofshort term technical assistance for specific assignments such as Claims and Dispute Resolutions and PPP Transactions;
1.3.4.2 Training and Capacity Building (US$200,000): Includes specific training courses, targeted workshops, and study tours for staff ofWater Appeal Board;
1.3.4.3 Works (US$200,000): Rehabilitation ofoffice buildings;
1.3.4.4 Goods (US$150,000): includes procurement ofvehicles and office equipment and furniture.
1.3.5 Environmental Management and Social Safeguards (US$2,357,143). Support the implementation ofthe ESMF and RPF.
1.3.6 Project Communication (US$1,670,000): support project communication activities over the 5 year implementation period. (This amount is consistent with the project communication strategy)
1.3.7 Institutional Strengthening Support to NWSC: (US$1,200,000): Support will be provided in the following areas:
1.3.7.1 GIS (US$400,000): for improved efficiency oftechnical, financial and commercial operations and administration;
1.3.7.2 Disaster Recovery System (US$ (US$350,000): for back up ofinformation and data;
1.3.7.3 Fleet Management System (US$150,000);
54 1.3.7.4 Data Gathering including surveys and verification exercises (US$300,000).
1.3.8. Operational Cost Support (US$200,000): This is support for new WSPs towards contribution to costs ofelectricity, fuel, and chemicals on a declining scale.
COMPONENT 2: SUPPORT TO THE COAST WATER SERVICES BOARD (CWSB) SERVICE AREA (US$45,203,760)
2. This component is aimed at providing resources to Coast Water Services Board (CWSB) for the following sub components:
2.1 Rehabilitation and Extension of Water Supply Facilities (US$34,361,300). This component will support (i)the rehabilitation ofexisting bulk water supply systems ofMzima Pipeline, Marere Pipeline, Baricho Pumping facility units, and (ii)rehabilitation ofgroundwater water sources Tiwi for Mombasa including pumping units power supply improvement, and transmission pipelines and storage tanks, (iii)rehabilitation of distribution network and increased installation ofbulk meters and service connections metering in Mombasa WSP system, and Malindi WSP system. (iii)expansion ofexisting water supply systems ofMombasa, Malindi, Kilifi, Lamu, Tana River, Taita Taveta and Kwale WSP areas by construction of(gravity or pumped) raw and treated water pipe mains, construction ofwater treatment works storage tanks water distribution networks and installation ofmetering. This component is focused on improving and expanding reliable, sustainable and affordable safe water supply to consumers.
2.1.1 Rehabilitation of Existing Water Supply Systems (US$30,380,800)
2.1.1.1 Rehabilitation of the Mzima Pipeline (US$7,226,000). Rehabilitation ofpipeline sections to secure its reliability to deliver water.
2.1.1.2 Rehabilitation of Marere pipeline (US$12,376,000). Rehabilitation ofMarere Pipeline to increase its capacity from 4,00Om3/day to 12,0OOm3/day.
2.1.1.3 Baricho Waterworks Rehabilitation (US$1,938,000). Baricho Water Works Rehabilitation ofexisting pumping units and associated accessories to raise pumping to 6OY000m3/day.
2.1.1.4 Tiwi Well fieldLikoni Pipeline Improvements (US$1,488,000). Tiwi Well FieWLikoni pipeline improvement to increase capacity to 7,00Om3/day.
2.1.1.5 Mombasa Island Reticulation Improvement: (US$4,095,000).
2.1.1.6 Malindi Town Reticulation Improvement (US$455,000). Improvement ofMalindi Town Reticulation system.
2.1.1.7 Consultancy Services (US$2,802,800). For the design ofrehabilitation works, tender documentation and construction works supervision and construction works contracts.
55 2.1.2 Expansion of Water supply Systems (US$3,980,500)
2.1.2.1 Tana River WSP (US$273,000). Construction ofHola Town Water Supply treatment facility and Tana River Rural Water Supply schemes.
2.1.2.3 Lamu WSP (US$273,000). Lamu Town Reticulation Improvement and Lamu Rural Water Supply schemes expansion.
2.1.2.4 Taita Taveta WSP (US$364,000). Voi Town Reticulation Improvement and Taita- Taveta Rural Water Supply schemes.
2.1.2.5 Kwale WSP (US$455,000). Kwale Town Water Reticulation Improvement and Kwale Rural Water Supply schemes expansion.
2.1.2.6 Malindi WSP(US$637,000). Malindi North Rural Water Supply schemes expansion.
2.1.2.7 Kilifi WSP (US$910,000). Kilifi Town Reticulation Improvement, Kilifi New Reservoir, and a Kilifi Rural Water Supply scheme expansion.
2.1.2.8 Extending Services to informal settlements in Mombasa (US$750,000).
2.1.2.9 Consulting Services (US$318,500) for design, tender document preparation and supervision.
2.2 Rehabilitation and Extension of Wastewater Facilities (US$3,072,460). Support the rehabilitation ofsewerage networks and sewage treatment facilities; extension ofexisting networks; on-plot sanitation; and hygiene campaigns. This component is focused on improving treatment and disposal ofwastewater. The rehabilitation ofdeteriorated treatment facilities and construction ofnew facilities would result in overall environmental benefits.
2.2.1. Mombasa Town Sewerage (US$1,306,000). Rehabilitation and reinforcement oftrunk sewers.
2.2.2 Malindi Town Sewerage system (US$1,488,000). Malindi Town New Sewerage system.
2.2.3 Consulting services (US$278,460). For the design, tender document preparation and supervision.
2.3 Institutional Strengthening Program (US$7,770,000). This sub component aims at establishing and reorienting the water sector organizations and strengthening their capacities in the designated areas oftheir sector leadership. The support includes operationalization and strengthening ofthe (a) asset holder CWSB and (b) the new autonomous ring fenced water services Provision Providers companies of (i)Mombasa, (ii)Kwale, (iii)Kilifi, (iv) Lamu, (v) Taita Taveta, (vi) Tana River, and (vii) Malindi.
56 2.3.1 Support to Operationalization and Strengthening of the Coast Water Service Board (about US$1,200,000. including contingencies).
2.3.1.1 Office Refurbishment (US$75,000): This includes rehabilitation and upgrading of three office buildings and the procurement ofneeded additional furniture;
2.3.1.2 Vehicles (US$140,000): Purchase ofvehicles for the day-to-day office and field operations ofCWSB;
2.3.1.3 Office Equipment (US$45,000): Purchase ofa set ofcomputers, photocopiers and accessories, and communications equipments;
2.3.1.4 Technical Assistance (US$740,000): Procurement ofa range ofengineering consultancy services, financial management and analysis, assets valuations, financial and technical audits, informal settlements WSS program infrastructure planning and procurement, communications, legal services, environmental monitoring, independent assessment of institutional framework, individual consultants (for short term onjob functions) for specific assessments (Project Management, PPP transactions, human resources etc.), and project and SPA audits. These will be packaged into comprehensive technical assistance consultancies;
2.3.1.5 Training and Capacity Building (US$200,000): This will include specific training courses, targeted workshops, courses and study tours for Board Directors and Senior Management and staff ofthe Coast Water Services Board.
2.3.2 Support to Operationalization and Strengthening of the Autonomous and Ring Fenced Water Services Providers (approximate Cost is US$ 2,300,000 including contingencies)
2.3.2.1 Office Rehabilitation/Upgrading and furniture (US$410,000): Refurbishment of WSP utility office space including partitioning and to allow for the installation of IT and communication equipment, and procurement ofoffice furniture;
2.3.2.2 Vehicles and motor bikes (US$640,000): Purchase ofoperational vehicles and motor bikes for WSP head office and supply field offices;
2.3.2.3 Office Equipment (US$126,000): Purchase of sets of computers, photocopiers and relevant accessories for WSP head office, supply offices;
2.3.2.4 Training and Capacity Building US$350,000): This will includes specific skills improvement training courses, targeted workshops, courses and study tours for Board of Directors Senior Management and staff ofWSP’s;
2.3.2.5 Commercial operations (US$474,000): This includes customer surveys and mapping for all water services providers and to undertake metering improvement programs in order to improve service levels by reducing unaccounted for water;
57 2.3.2.6 Financial operations (US$lOO,OOO): This covers purchase of accounting and management software and billing systems to improve WSPs financial operations;
2.3.2.7 Technical operations (US$200,000): These funds will be used to purchase emergency spares and operational equipment to improve service standards.
2.3.3 Environmental Management and Social Safeguards (US$2,300,000). Support the implementation ofthe ESMF and RPF.
2.3.4 Project Communication (US$1,670,000): support project communication activities over the 5 year implementation period. (This amount is consistent with the project communication strategy).
2.3.5 Operational Cost Support (US$300,000): This is to support new WSPs towards contribution to costs ofelectricity, fuel, and chemicals directly related to water production and distribution on a declining scale.
COMPONENT 3; SUPPORT TO THE LAKE VICTORIA NORTH WATER SERVICES BOARD (LVNWSB) SERVICE AREA (US$42,644,361)
3. This component is aimed at providing resources to Lake Victoria North Water Services Board (LVNWSB) for the following sub components:
3.1 Rehabilitation and Extension of Water Supply Facilities (US$25,974,839). This sub component will support (i)the rehabilitation ofexisting water supply systems including water sources intakes, surface and groundwater borehole sources, transmission pipelines (gravity or pumped), water treatment works, storage tanks, water distribution networks (ii)construction of extension ofwater supply source works water treatment works etc in selected small towns, and (iii)construction ofextension ofwater distribution networks and installation ofmetering. This sub component will focus on improving and expanding water supply to make them be reliable, sustainable, affordable and safe to consumers.
3.1.1 Rehabilitation of Water Supply Systems (US$5,338,545)
3.1.1.1 Rehabilitation of schemes of Two Towns of Kimilili and Malakisi (US$2,449,527). The works will comprise of(i) the rehabilitation ofintake structures and its access road, (ii) rehabilitationheplacement ofraw water pumping facility units, controls power supply and associated electrical works, (iii)repairs ofraw water pipe mains (iv) rehabilitation ofwater treatment chemical dosing facilities units, (v) rehabilitation oftreated water pumping units and associated controls power supply and electrical works (vi) rehabilitation oftreated water pipe mains, (vi) rehabilitation ofstorage tanks; and (vii) rehabilitation distribution pipe network including installation ofbulk metering and connections meters;
3.1.1.2 Six independent rural water supply schemes of Si0 Port, Port Victoria, Musanda, Navakholo, Kwanza and Kapcherop, and 1 rural cluster (US$2,403,696). The works will
58 comprise of(i) cleaning (flushing) and equipping ofboreholes, (ii)water treatment chemical dosing units ( where required), (iii)rehabilitation ofpipeline fittings ( section valves, air valves, wash outs, etc), (iv) replacements ofpipeline sections that are prone to bursts and supply failures, (v) repair ofleaking storage tanks;
3.1.1.3 Consulting services for design and supervision (US$485,322). For design of rehabilitation works, Tender documentation and construction works supervision and construction works contracts.
3.1.2 Expansion of Water supply Systems (US$20,636,294). The expansion works will consist ofexpansion ofintake structures to cater for increased demand or development ofnew intakes and drilling ofnew boreholes; new treatment works or expansion ofexisting treatment works; new pumping units for raw water and treated water; new Storage tanks; new backwash systems; additional rising mains and reticulation systems; metering ofschemes; additional balancing tanks; additional dosing facilities; water testing laboratories.
3.1.2.1 Mumias and Butere Towns (US$7,605,000).
3.1.2.2 Three Independent Rural Schemes (US$2,011,278).
3.1.2.3 Two Rural Clusters (US$4,076,369).
3.1.2.4 Consulting services for design (where necessary) and supervision of the above (US$1,405,451).
3.1.2.5 Extending Services to Informal Settlements (US$500,000).
3.1.2.6 Eldoret Water supply Expansion: Expansion of Chebara Water Treatment Works, and construction of DN 200 reticulation system expansion. Civil Works (US$4,580,178); 0 Consultancy (supervision) (US$458,018).
3.2 Rehabilitation and Extension of Wastewater Facilities (US$9,863,522). This will have the following sub components:
3.2.1 Mumias town Construction Works (US$4,493,421). This will consist ofconstruction of sewerage systems in Mumias town (of approximate capacity of7,500 m3/d).
3.2.2 On site sanitation (US$655,235). Butere, 3 independent schemes and 2 rural clusters.
3.2.3 Consulting services for design (where necessary) and supervision for 3.2.1 and 3.2.2 (US$534,866).
3.2.4 Malaba Kocholia Sewerage system expansion including construction ofwaste stabilization ponds and 5 km sewers and on plot connections: Civil works (US$1,300,000);
59 Consultancy (design and supervision) (US$130,000).
3.2.5 Kimilili Town- development of sewerage system including waste stabilization ponds, 5 km trunk sewers and laterals: Civil works (US$2,500,000); Consultancy (design and supervision) (US$250,000).
3.3 Institutional Strengthening Program (US$6,806,000). This component is aimed at establishing and reorienting the water sector organizations and strengthening their capacities in designated areas oftheir sector leadership. The support includes operationalization and strengthening of: (i)the asset holder -LVNWSB; and (ii)new autonomous and ring fenced water and sewerage service provision companies ofWestern, Nzowasco, Amatsi, and Eldowas as outlined below.
3.3.1 Support to Operationalization and Strengthening of LVNWSB (Approximate cost US$1,320,000 including contingencies).
3.3.1.1 Office refurbishment (US$SO,OOO); Includes rehabilitation and upgrading ofthree office premises and purchase ofneeded additional furniture;
3.3.1.2 Vehicles (US$l50,000): Purchase ofvehicles for day to day office running and field operations ofLVNWSB;
3.3.1.3 Office Equipment (US$130,000): Purchase ofcomputers, photocopiers and accessories, communication equipment, plotter and software;
3.3.1.4 Technical Assistance (US$730,000): Involves procurement oftechnical assistance for M & E, engineering, financial management and analysis, legal, assets valuation, audits, informal settlements WSS program, communications, environmental monitoring, and independent assessments ofinstitutional framework; In addition, hiring of individual consultants (on the job functions - short term) for specific assignments such as Project Management, project and SPA audits , PPP Transactions, and Human Resource Development etc.;
3.3.1.5 Training and Capacity Building (US$230,000): Includes specific training courses, targeted workshops, and study tours for Board ofDirectors, Senior Management and staff of LVNWSB.
3.3.2 Support to Operationalization and Strengthening of autonomous and ring-fenced Water Services Providers (Approximate cost US$1,216,000 including contingencies).
3.3.2.1 Office Rehabilitation and / or Upgrading (US$280,000): Refurbishment ofWSP utility office space including partitioning and to allow for the installation ofIT and communication equipment, and procurement ofoffice hiturefor the WSP’s ofWestern, Nzowasco, Amatsi, and Eldowas;
60 3.3.2.2 Vehicles and motor bikes (US$300,000): Purchase ofoperational vehicles and motor bikes for WSP ‘s (Western, Nzowasco, Amatsi, and Eldowas) Head Office and water supplies field offices use in operation and maintenance work;
3.3.2.3 Office Equipment (US$lOO,OOO): Purchase of sets ofcomputers, photocopiers and relevant accessories for WSP (Western, Nzowasco, Amatsi, and Eldowas) Head Office, and water supply offices;
3.3.2.4 Training and Capacity Building (US$220,000): This will includes specific skills improvement training courses, targeted workshops, courses and study tours for Board of Directors and Senior Management and staff ofWSP’s (Western, Nzowasco, Kapsabet, Amatsi, and Eldowas);
3.3.2.5 Commercial Operations (US$166,000): This includes customer surveys and mapping for all water services providers and to undertake metering improvement programs for Amatsi and Kapsabet in order to improve service levels by reducing unaccounted for water;
3 -3.2.6 Financial operations (US$50,000): This covers purchase ofaccounting and management software and billing systems to improve WSPs financial operations;
3.3.2.7 Technical operations (US$lOO,OOO): These funds will be used to purchase emergency spares and operational equipment to improve service standards.
3.3.3 Environmental Management and Social Safeguards (US$2,300,000). Support the implementation ofthe ESMF, RPF and IPPF.
3.3.4 Project Communication (US$1,670,000): Support project communication activities over the 5 year implementation period. (This amount is consistent with the project communication strategy).
3.3.5 Operational Cost Support (US$300,000): This is to support new WSPs towards contribution to costs ofelectricity, fuel, and chemicals directly related to water production and distribution on a declining scale.
61 Annex 5: Project Costs KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Local Foreign Total Project Cost By Component and/or Activity us US US%Million %million %million Component 1 - AWSB 1.1 Rehab & extension of Water supplies 12.58 18.88 36.61 1.2 Rehab & extension of sanitation facilities 10.14 15.21 25.35 1.3 Institutional Strengthening program 4.88 3.26 8.14
Total Base Cost 27.60 37.35 64.95 Contingency 2.17 4.34 6.51 Total Component Cost 29.77 41.69 71.46
Component 2 - CWSB 2.1 Rehab & extension of Water supplies 12.49 18.74 3 1.24 2.2 Rehab & extension of sanitation facilities 1.12 1.67 2.79 2.3 Institutional Strengthening program 2.83 4.24 7.06
Total Base Cost 16.44 24.65 41.09 Contingency 1.64 2.47 4.1 1 Total Component Cost 18.08 27.12 45.20
Component 3 - LVNWSB 3,1 Rehab & extension ofWater supplies 9.44 14.17 23.61 3.2 Rehab & extension of sanitation facilities 3.59 5.38 8.96 3.3 Institutional Strengthening program 2.48 3.71 6.19
Total Baseline Cost 15.51 23.26 38.76 Contingencies 1.55 2.33 3.88 Total Component Cost 17.06 25.58 42.64
Total Project Costs' 64.91 94.39 -159.30 Interest during construction Front-end Fee Total Financing Required 64.91 94.39 159.30
1 Component [ Indicative Financing Plan I IDA (US%m) YO WSBs/GOK (US%m) Total (US$m) Component 1 65.99 44 5.47 71.46 1 Component 2 I 43.53 I 29 I 1.67 I 45.20 -1 I Component3 I 40.48 I 27 1 2.16 I 42.64 1 1 Total I 150.00 I 100 I 9.30 159.30
62 Annex 6: Implementation Arrangements KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Project Implementation by Sector Institutions
1. The project will be implemented principally through the appropriate existing sector institutions in line with sector service delivery framework as provided for in the Water Act (2002). This is consistent with the overall aim ofsupporting the GOK’s sector reform process and in line with the principles espoused by the Partnership Principles between the GOK and development partners active in the sector working group (the Water and Sanitation Technology Group).
2. The sector institutions with the relevant mandate for the specific type and nature of any support given by the project will be implementing (or have full control over the implernentati~n~~)those specific support. To the fbllest extent possible, the mandates and autonomy ofthe sector institutions will be respected. No special purpose project implementation unit or agency will be utilized. Institutional strengthening ofsector institutions forms one objective ofthe project and as such, support to this end will be provided where necessary. The project will, as much as possible, utilize the sector reporting and monitoring mechanisms and principles with necessary oversight and safeguards to be agreed with the GOK, in particular in the areas oftransparency, governance and risk management.
3. This Annex describes the sector institutional framework that has been put in place by the GOK (as part ofthe sector reform) within which the project would be implemented.
Sector Institutional Framework
4. Water Supply and Sewerage Sector Organization. The sector institutional framework stipulated in the Water Act (2002) is aimed at harmonizing and streamlining the management of water resources and water supply and sewerage services. A key principle ofthe new service delivery framework is the separation offunctions between each aspect ofservice delivery - policy making, regulation, asset ownership / control and service delivery operations. The consequent formalization ofrelationships between these functions is expected to reduce conflicts ofinterest and increase transparency and accountability. In the case ofwater supply and sewerage, a simplified organization of the sector institutions is given in Diagram A6.1.
23 In the case ofthe small technical assistance proposed for the Water Services Regulatory Board (WSRB) and the Water Appeal Board (WAB), the funds and implementation would be channeled through the Athi Water Services Board (AWSB) for practical purposed. However, WSRB and WAB would have control over the project activities and AWSB would strictly as the procuring agent for the WSRB and WAB.
63 Diagram A6.1
Simplified Organization of Sector Institutions
Ministry of Water & Irrigation
Water Oversight Oversight Services ' Appeal Trust Fund Board
5 Board 6 6+ Water Services Boards (7 nos.) Coast WSB, Athi Tana WSB, Rift Valley WSB, Northern ke Victoria rth WSB & Lake Victoria South WSB
.8 M
Lo
... and other WSPs as contracted by WSBs
64 5. Institutional Responsibilities. The Water Act (2002) and the associated Transfer Plan24 ' set out the mandates and responsibilities ofeach sector institution. These mandates are summarized in Box A6.1.
Box A6. I Mandates and Responsibilities of WSS Sector Institutions
The Ministry of Water and Irrigation (MWI): The Ministry focuses onpolicy development, sector coordination, monitoring and supervision to ensure equitable and effective water and sewerage services in the country, sustainability ofwater resources and development ofwater resources for irrigation, commercial, industrial, power generation and other uses.
The Water Appeal Board (WAB): The Water Appeal Board is responsible for the determination ofappeals and disputes. The decision ofthis board is administrative and final, except in matters oflaw whereby an appeal could be made to the High Court.
The Water Services Trust Fund (WSTF): The Water Services Trust Fund assists in the financing the provision ofwater services to areas without adequate water services. Trustees appointed and holding office under a Trust Deed prepared by the Minister (of Water and Irrigation) manages the Fund.
The Water Services Regulatory Board (WSRB): The Water Services Regulatory Board is responsible for the regulation of water and sewerage services, including licensing, quality assurance, and issuance ofguidelines for tariffs, prices and handling ofservice complaints.
The Water Services Boards (WSBs) and Water Service Providers (WSPs): The Water Services Boards are responsible for the efficient and economical provision of water and sewerage services within their area ofjurisdiction. Seven such bodies have been established to cover the entire country. However, direct provision ofwater services would be undertaken by Water Service Providers who are agents ofWater Service Boards except in cases where the Water Services Regulatory Board (WSRB) is satisfied that the procurement ofsuch agents is not possible or that provision ofservices by such agents is not practicable. The water services providers may be community groups, Non-Governmental Organizations, or autonomous entities established by local authorities or other persons.
Note: Sourced from The Water (Plan of Transfer of Water Services) Rules, 2005
Key Relationships affecting the Project.
6. The key relationships between sector institutions affecting the project (MWI, WSFU3, WAB, WSBs and WSPs) are defined in a series of documents (Acts, licenses, agreements) that constitute the overall framework ofresponsibilities for the provision ofWSS services:
24 The Water (Plan ofTransfer ofWater Services) Rules, 2005
65 0 License granted by the WSRB to the WSBs. The Athi Water Services Board (AWSB), Coast Water Services Board (CWSB) and Lake Victoria North Water Services Board (LVNWSB) have each been issued a License to mandate them to ensure the provision of water services in their area ofjurisdiction. The WSBs would remit a fee (based on a percentage ofthe operational income ofthe WSPs subject to a maximum cap) to the WSRB which would, in part, fund WSRB’s operations and activities.
0 Relationship between MWI and WSBs. As provided for in the Water Act (2002), the Minister for Water and Irrigation has the responsibility ofestablishing (b official gazette) the Water Services Boards and appoint their Board ofDirectors2! Seven WSBs have been gazetted in Kenya and their Board of Directors chosen to represent various stakeholders (at present, the stakeholder groups are principally representative ofthe area districts, central government and consumers).
0 Athi Water Services Board (A WSB) was gazetted on March 21, 2003 as a public authoritg6 mostly responsible for managing, financing and developing water supply and sewerage facilities in the Districts ofKajiado, Machakos, Kiambu, Thika and Makueni, and Nairobi province.
0 Coast Water Services Board (CWSB) was gazetted on February 13,2004 as a public authority mostly responsible for managing, financing and developing water supply and sewerage facilities in the Districts ofKilifi, Kwale, Lamu, Malindi, Mombasa, TaitdTaveta, Tana River and Bura.
Lake Victoria North Water Services Board (L VNWSB) was gazetted on February 13,2004 as a public authority mostly responsible for managing, financing and developing water supply and sewerage facilities in the Districts ofBungoma, Busia, Kakamega, Vihiga, Mt. Elgon, Lugari, Teso, Butere/Mumias, Uasin Gishu, Nandi North, Trans Nzoia and Marakwet.
Relationship between Water Services Boards (WSBs) and Water Services Providers (WSPs). WSBs are required to sub-contract technical, financial and commercial operations to WSPs (except in very limited circumstances as described in Box A6.1). The contracting process is effected through a Service Provision Agreement (SPA) that specifies how: (a) the WSS service has to be provided; (b) the WSS assets have to be operated and maintained; (c) connections have to be provided.to new customers; (d) consumption has to be metered and billed; and (e) bills have to be collected. The SPA encourages WSPs to operate efficiently and maximize its profits by reducing commercial losses (e.g., through improved billing and collection) and operating costs (e.g., by limiting physical losses and efficient use ofenergy and chemicals). It is possible for the WSBs to delegate other (non-operational) responsibilities to WSPs e.g., construction of assets. The SPA specifies how the WSPs are to be remunerated for (i)operating the services on behalf ofthe WSBs, and (ii)performing delegated works on behalf ofWSBs.
25 The term ofappointment ofthe Board ofDirectors is three years. 26 WSBs are in effect state corporations
66 In the case ofthe former, the normal method ofremuneration is for the WSP to retain a portion of the collections from customers.
Relationship between WSBs and ‘other’ asset owners. It is possible for entities other than the WSB to own water and sewerage assets. In such cases, the Water Act (2002) provides for the WSB to assume full control ofthe operations ofthe assets through clear agreements between the WSB and the asset owner. Typically, the asset owner is remunerated for the use ofthe assets. These circumstances may occur for example:
in specific cases where ownership did not rest with the central government prior to the sector reform and hence could not be easily passed directly to the WSB (the case in Nairobi City which is described further in the Box A6.2), or
0 in cases where WSBs come to some agreement with third party financiers and developers to develop WSS assets).
Box A6.2 Special Provision for Service Provision Arrangement in Nairobi City
Prior to the Water Act (2002), Nairobi city was one often major gazetted local authoritiesathat operated their own water and sewerage systems. These local authorities owned the assets (and liabilities) associated with the water and sewerage services. In Nairobi city, the water and sewerage service was provided by a municipal department ofthe City Council ofNairobi (CCN). The department was not financially autonomous from CCN.
With the advent ofthe Water Act (2002), there was a requirement for the relevant WSB to either gain ownership ofthe assets (and liabilities) or assume full control ofthe operations ofthe assets through clear agreements between the WSB and the asset owner. In Nairobi city, AWSB have leased the water and sewerage assets from CCN through an arrangement whereby the CCN is remunerated with a small percentage ofthe collections from the operations.
In Nairobi, the asset and liability issue is associated with the issue ofliabilities the CCN currently owes the GOK (a debt amounting to more than $120m in principle and accrued interests for WSS related investments). This debt was on-lent by the GOK to CCN mainly from the proceeds ofdebt that the GOK obtained from external development agencies. The debt has not been serviced by CCN - even though it currently receives a portion ofthe tariff collections under the lease arrangement. This situation is untenable especially in a scenario where further debt financing in the WSS operations and infrastructure in Nairobi is being considered. A resolution ofthis situation is urgently required as a pre-requisite before further consideration for WSS investments in Nairobi. A satisfactory resolution would be agreed during project preparation and confirmed before the project effectiveness. This resolution should be consistent with the principals and spirit ofthe Water Act (2002), involve all stakeholders (Ministry of Finance, Ministry ofLocal Government, CCN, AWSB and NWSC) and also promote the principle ofsustainability in the sector by helping to build the financial credibility ofsector institutions and mitigate against the recurrence ofdebt default in the sector. It is expected that this resolution would lead to a significant change in the ownership structure ofthe assets and liabilities, reducing or eliminating the debt burden ofCCN with substantial part ofthe liabilities (and the associated assets) transferred from CCN.
While it is not a requirement, the development ofthe sector reform thus far have proceeded mainly on the basis where companies (or other legal entities) appointed as WSPs in the first
67 instance are owned by local authorities or where local authorities and/or communities have a major stake. This is the case in Nairobi city where AWSB sub-contracted the technical, financial and commercial operations to the Nairobi City Water and Sewerage Company (NWSC), a company owned by CCN. NWSC is fully autonomous from CCN and is subject to the stipulations ofthe Companies Act. In order to reinforce the autonomy as well as ensure the representation ofbroad stakeholder voice in the provision of water and sewerage services, the Board ofDirectors consists ofnine members a majority ofwhich are external from CCN. The Board members are (i)the Mayor; (ii)the Town Clerk; (iii)the City Treasurer; (iv) the Water Committee chairman (CCN); (v) the Finance Committee chairman (CCN); (vi) representative of the Justice and Peace Commission (an NGO); (vii) representative ofthe Kenya National Chamber ofCommerce and Industry; (ix) representative ofPlan International (an NGO); (viii) representative ofthe Institute ofCertified Public Accountants; and (ix) representative ofAmref (an NGO). The Managing Director serves as an executive Board ofDirector.
Notes a Nairobi, Nakuru, Kisumu, Eldoret, Kericho, Nanyuki, Nyeri, Kitale, Thika and Nyahururu In various other cases, the water and sewerage service was provided through autonomous municipal owned water , supply and sanitation authorities
0 Relationship between WSPs and customers. WSPs will thus bear the commercial risk ofservice provision as their revenues will largely come only from bills collected. Customers receive services directly from the WSP that has been appointed by the relevant WSB to provide services in the area where the customer resides. As such, customers would have a commercial contract with the WSP. The commercial relationship between the customer and WSP is stipulated in various documents, including the customer connection contract and the water and sewerage bills. These stipulate the rights and obligations ofboth the WSP and the customers, including the responsibility for the customer to make prompt payment for services provided by the WSP.
7. Shareholders and Board of the Services Provider. As described in Box A6.2, while it is not a requirement under the Water Act (2002), most WSPs appointed thus far are companies (or other legal entities) appointed owned by local authorities or where local authorities and/or communities have a major stake. The involvement oflocal stakeholders is a positive element of the current typical arrangement. However, this circumstance also introduces some risk to the autonomy and independence ofdecision making to the WSBs and WSPs. Typically, the sector institutions are mitigating this partly through ensuring the representation ofbroad stakeholder voice in ofwater and sewerage services institutions. The Board ofDirectors ofWSBs comprises a satisfactorily diversified group ofstakeholders (and in the case ofAWSB, has signed Codes of Conduct / Ethics). The Board ofDirectors ofWSPs comprises a satisfactorily diversified group ofstakeholders with the local authority itself holding a minority number ofBoard seats. The Chairman is elected by the Board ofDirectors but not drawn from the local authority representatives. In the case ofNairobi, the Board ofdirectors has signed Codes ofConduct / Ethics). This arrangement would be continued and adopted for the project.
68 Project Contractual Arrangements
8. Implementing Agencies. There would be three implementing agencies Le., AWSB, CWSB and LVNWSB. It is expected that the bulk ofthe project investments would support the investment program ofthe WSBs as developer/owner ofthe WSS assets. Water Services Providers (WSPs) may also receive limited technical assistance and small working capital support but these would be channeled through the respective WSBs. WSBs may also delegate the execution ofsome oftheir mandates their WSPs. As a practical measure, the small support expected to be provided to the WSRB and WAB would be implemented through the AWSB. In all cases, the WSBs remain the principal accountability units for the project. They will be responsible for financial, procurement and physical monitoring reports on activities implemented by them. While each implementing agency would implement their own portion ofthe project, AWSB, CWSB and LVNWSB have set up a Project Coordination Team (PCT) that will periodically meet to (i)provide overall project coordination, (ii)ensure timely submission of project reports, and (iii)coordinate project activities, exchange information, share experiences and technical expertise. AWSB will provide the secretariat for the PCT and the team comes under the oversight ofthe respective Chief Executive Officers ofAWSB, CWSB and LVNWSB.
9. Proposed Agreements Governing the Project. The International Development Association (IDA) and the Republic ofKenya would enter into a Financing Agreement. It is expected that the GOK would pass the proceeds ofthe project credit to the WSBs mainly as credit and a small amount ofgrant. In line with the mandate ofthe WSBs and WSPs as autonomous corporate bodies with borrowing capacities, the GOK will enter into separate subsidiary credit / grant agreements with AWSB, CWSB and LVNWSB. AWSB, CWSB and LVNWSB will enter into separate Project Agreements with the Bank. In cases where WSPs are to be supported by the project, Utility Provision Agreement (similar to the subsidiary credit / grant agreements) would be entered into between the WSB and the WSP stipulating the terms and conditions on how the support would be provided (including the WSP’s participation in the procurement process) and how working capital assets, if any, are to be passed to the WSP27. A model agreement between WSBs and supported WSPs will be agreed in advanced.
10. Conformance to Sector Institutional Framework. The conformance ofthe implementation arrangements with the sector institutional framework is illustrated in Diagram A6.2 with project contractual arrangements superimposed on the sector institutional framework.
27 The WSB remains the principal implementation / procurement and approval agency.
69 Diagram A6.2
Project contractual arrangements superimposed on the sector institutional framework
Ministry of Water & Irrigation
5Jc ? 0 L Water r Appeal rb Board
.-a dl ..!..... I >I
Notes: Black arrows represent sector institutional relationships Blue arrows represent project funds flow relationships between sector institutions Red arrows represent project funds flow relationship between IDA and Republic of Kenya Brown arrows represent project agreements between ID'4 and the project implementing agencies
The project agreements and funds flow mechanisms are aligned with sector institutional setup and respect the mandates of the WSBs and WSPs as corporate bodies with borrowing capacities (except in project support to WSRB and WAF3 where AWSB acts as a procuring agent and proper mechanism are put in place to mitigate conflicts and protect the autonomy of WSRB and WAF3
70 Annex 7: Financial Management and Disbursement Arrangements KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
I. INTRODUCTION
1. The financial management (FM) assessment covers the financial management functions ofthe project’s implementing entities, namely Athi Water Services Board (AWSB), Coast Water Services Board (CWSB) and Lake Victoria North Water Services Board (LVNWSB). The assessment was based on information obtained from the implementing entities; review of documents such as auditor’s reports and management letters; discussion with government and the implementing entities; and review ofthe AWSB’s performance under the ongoing World Bank funded Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP).
11. SUMMARY
2. Project financial management arrangements take into account the overall country governance and PFM environment, as well as the project institutional arrangements. The project will use the 3 WSBs’ existing institutional FM systems, and operate through their regular structures. The project will support strengthening ofthe 3 WSBs’ institutional FM capacity and improvement oftheir FM performance including in key areas such as accounting, internal audit, management oversight, etc. It will also support improvement ofaccounting and financial management in selected WSPs (although WSPs will not receive and handle project fimdsper se).
3. Robust project FM arrangements have been designed. Detailed project cost estimated budgets have been prepared, and arrangements agreed for regular monitoring. A computerized accounting system is in place in the AWSB, and is in an advanced stage ofimplementation in LVNWSB and CWSB. All 3 WSBs have professionally qualified accountants (CPAs) staffing key financial management and internal audit functions. IDA disbursements would be based on quarterly unaudited Interim Financial Reports (IFRs). Entity and project financial statements would be prepared in accordance with International Financial Reporting Standards. Annual audits would be carried out by the Kenya National Audit Office (KNAO). Audit ofproject finances would be carried out in conjunction with the entity audits ofthe 3 WSBs. Additional audits ofthe WSBs are also carried out periodically e.g., a systems audit by the KNAO. An important aspect to be monitored is follow-up actions by the WSBs on the findings ofthe various audits .
4. In addition to the measures to strengthen institutional FM systems outlined above, enhanced fiduciary safeguards have been put in place to respond to identified country-level corruption and weak governance risks. The proposals take account ofincreased fiduciary safeguards recommendations ofa recent Government-commissioned forensic audit and a Detailed Implementation Review ofselected projects in the Kenya portfolio by the Bank’s Integrity Department. This includes the development and implementation ofan institutional risk management policy framework. Comprehensive risk assessments ofthe implementing entities are being carried out and mitigating action plans are being developed with the assistance of contracted expert consultants. This would be documented in an Institutional Risk Management Policy Manual. This approach has been adopted from the COS0 framework, and
71 aims at going beyond the effectiveness of "process" internal control mechanisms to increased awareness and responsiveness by management (particularly at the senior managementhoard level) to all types ofrisks that the institution faces. It pays attention to matters such as effective board and senior management oversight; adequate fiduciary operations policies, procedures and limits; adequate risk monitoring and management information systems; adequate internal controls; and effective operational, fiduciary, and other compliant handling arrangements. This framework is also expected to provide recommendation to further strengthen internal audit, strengthen the mandate and operation ofkey Board committees (Finance Committee and Audit Committee), identify improvements to Financial Management Manuals ofthe WSBs, and measures to strengthen public disclosure ofinformation and complaint handling mechanisms.
5. Financial management risk is rated substantial. This takes into account the overall country governance and public financial management environment, as well as project-specific factors. It also takes into account that one ofthe implementing entities AWSB has a good track record ofperformance under the NWSIRP Project, and that the other two entities LVNWSB and CWSB are relatively new entities. The FM risk rating and related actions to address key risks would continue to be monitored and updated during project implementation.
111. PROJECT BACKGROUND
6. Development Objective. The development objective ofthe project is to: (a) increase access to reliable, affordable and sustainable water supply and sanitation services; and (b) to improve the water and wastewater services in the areas served by AWSB, LVNWSB and CWSB. This will be achieved by (i)rehabilitating selected existing water production, transmission, storage and distribution facilities and wastewater collection, treatment and disposal facilities, (ii) expanding piped water supply services to under-served areas through the extension ofprimary and secondary distribution pipes where required (this would include service expansion into urban slums / informal settlements through a balanced program including the involvement of communities in decision making), and (iii)refining and strengthening the institutional structure, emphasizing on increasing accountability and transparency ofthe institutional and governance and management framework.
7. Implementing Entities. The Project will be implemented by three Water Services Boards (WSBs), namely Athi Water Services Board (AWSB), Lake Victoria North Services Board (LVNWSB) and Coast Water Services Board (CWSB). These are legal entities (statutory bodies) established following enactment ofthe Water Act, 2002 and licensed by the Water Services Regulatory Board (WSRB). They are run by a Chief Executive Officer (CEO) who reports to a Board ofDirectors. Their institutional arrangements include Board members representing stakeholders with the mandate ofoverseeing effective operations. Respective entities also have full fledged management personnel including a chief executive officer, finance and procurement managers. AWSB (formerly known as Nairobi Water Services Board) has good performance under a World Bank-funded project (the Nairobi Water and Sewerage Institutional Restructuring Project). AWSB has strengthened its financial management structures. The other two WSBs (LVNWSB and CWSB) have been in existence for about 2 years and have not been involved in any World Bank fbnded project. It is envisaged that AWSB will support the other 2 entities on account ofits prior experience and more developed FM arrangements. The
72 fact that AWSB is based in Nairobi while the other entities are over 500 kilometers outside Nairobi also makes it easier for AWSB to follow-up with the World Bank, MWI, MOF and other related bodies which are all based in Nairobi, on behalf ofthe other two WSBs.
8. Project coordination. Project activities will be mainstreamed into the operations ofthe 3 WSBs. A Project Coordinating Team (PCT) comprising responsible officers from respective institutions is being established. The team will be responsible for the general coordination ofthe project especially for cross-cutting issues. This would include monitoring overall project implementation and reviewing and presenting project progress reports and following up on various project issues on behalf ofthe respective Boards, the World Bank and stakeholders. However, the overall fiduciary responsibility ofthe project including but not limited to the preparation ofthe financial reports (quarterly IFR and annual financial statements) and external audit arrangements shall vest in the respective WSB.
9. All project funds will be handled and accounted by the 3 WSBs. Although the project would also support other entities such as Water Service Providers (WSPs), the WRSB and WAB, funds for such support would be channeled through the WSBs. The WSBs would carry out all the necessary activities such as procurement, payment, accounting and reporting for these activities.
IV. COUNTRY FINANCIAL MANAGEMENT ISSUES
10. The most recent piece ofdiagnostic work that provides up to date information on the country’s public financial management (PFM) system is the Country Integrated Fiduciary Assessment (CIFA, draft September 2006). The assessment, together with the current Country Assistance Strategy (CAS) that was effected in May 2004 review Government’s performance since the last Country Financial Accountability Assessment (in 2001) and CAS (in 1998). The CIFA adopted the PEFA performance measure framework as a guiding reference to diagnose the key challenges facing policymakers, report on recent progress, and outline priority areas for attention.
11. The CIFA highlighted that government has been putting in place a new set oflaws and regulations to strengthen the PFM system. The government enacted in 2005 the public procurement and disposal act, which provides for an independent public procurement oversight authority. Parliament also passed legislation establishing an independent Auditor General’s office and was expected to debate new legislation which will give the body a stronger role in the preparation ofthe budget. Capacity ofthe government to manage public finances has also been strengthened. Over the past two years the budget preparation process has been substantially reformed. This has led to a reorientation ofbudgetary allocations towards investment in infrastructure and delivery ofservices to the poor. It has also led to the more direct participation ofstakeholders in reviewing policy choices prior to finalization ofthe budget. Budget reporting has also improved, both through technical changes in the way the budget is presented and through a dramatic reduction in the audit backlog for central government operations. It is expected that these reforms will enable the parliament’s public accounts committee to play a more effective role in reviewing government expenditures and the concerns raised by these audits, thereby increasing the strength ofparliamentary oversight.
73 12. However, very significant challenges remain. Substantial areas ofgovernment spending are not properly scrutinized. A number ofministries returned funds to the treasury, underscoring weaknesses in budget implementation and procurement across the public sector. And while good progress has been made in addressing the backlog ofaudits ofcentral government operations, local authorities have yet to produce audited accounts, raising concerns that corruption at this level remains unchecked.
13. Through its Public Financial Management Reform Strategy, Government remains committed to strengthening fiduciary safeguards with a view to achieving economy, efficiency and effectiveness in the use ofpublic funds. With the support ofa number ofdevelopment partner-assisted initiatives, including the IDA-funded Institutional Reform & Capacity Building Project (IRCBP), Government is seeking to rapidly enhance the financial accountability framework, particularly through strengthening legislation related to public financial accounting and audit.
14. Other country-level FM risks arise‘from the country’s overall governance environment, a weak judiciary and corruption concerns. The Government has prepared a governance action plan that has been implemented and is being monitored. The Government has also mandated the setting up ofindependent oversight committees especially the audit and finance sub-committees for public bodies.
15. On the Bank-financed portfolio, project implementation has generally been slowed down by constraints in the flow ofresources and limited absorptive capacity arising from bureaucratic processes. Government is committed to improving portfolio performance. In the last couple of years, agreements have been reached on several key issues in the context ofCountry Portfolio Performance Reviews and other discussions. These include actions to improve audit compliance, closer monitoring ofproject performance by MOF and improvements in the flow ofproject resources, although significant improvements still needs to done.
16. The findings offorensic audits ofGovernment commissioned forensic audits ofselected projects in the country portfolio (November 2004 and June 2005) include the following financial management related issues: (a) projects were generally not controlled using a balancing general ledger system that was fully integrated and regularly reconciled with the rest ofthe government’s central accounting system; (b) project designs did not identify fraud risks and fraud risk management was not an integral part of each project; (c) senior government oversight ofthe projects was weak; (d) management accounts and project quarterly reports reflect levels of activity but do not necessarily identify major issues so that they can be actioned; and (e) lessons learned and best practices are not shared among similar projects or passed into the wider government structure.
V. PROJECT FINANCIAL MANAGEMENT SYSTEM
17. The project’s FM system will fully use the 3 WSBs’ existing FM systems.
74 a. Budgeting
18. Budgeting for the project has been undertaken by the respective WSBs. Detailed cost tables for the project have been prepared and agreed.
19. The project’s budgeting system will be consistent with Government’s budget system and integrated in the annual budget cycle ofrespective institutions. Existing budgeting systems are considered sufficient for this purpose. The Budgets for the WSB are submitted to the MWI for approval by end ofFebruary every year and MWI submits these to MOF. The budgets include district level activities which are required to be implemented and supervised by the WSB especially the development component. Financial resources will be included in the Government budget and channeled from Ministry ofFinance to MWIfor onward remittance to respective WSBs.
20. There is need for some improvement in the budget processing procedures. The WSBs tend to experience significant delays in processing their budgets through the Ministry ofWater and Irrigation as required by law. Past experience indicates that the MWIamends the budgets submitted by WSBs without informing the WSB. Therefore the final budgets approved by MOF are materially different from the initial budgets submitted by the WSBs. The changes are usually noticed by the WSBs in the month ofJune after the printed estimates are released by MOF. This forces them to make unplanned changes to the budgets and work plans within the budget periods which diminishes the value ofthe budgets as a control and monitoring tool. There has also been reluctance on the part ofMWI to channel the district development funds through the WSBs as required in spite ofthe fact that these funds are factored in the budgets ofthe WSBs. The funds are channeled directly to the District Water Officers (DWOs), who are outside the control ofthe WSB. This makes it difficult for the WSBs to monitor the implementation ofthe development projects as required. This issue will continue to be discussed among the relevant institutions with a view to streamlining the processes.
2 1. Budget implementation will be monitored using the respective Boards’ financial reporting systems. As discussed later in this Annex, proposed periodic reporting include quarterly reports on project finances, cash flow projection, and variance analysis; and review on an ongoing basis. b. Accounting
22. Project activities will be integrated into and accounted for under respective WSB’s existing accounting systems which are well established. The codes relating to the project will be integrated in the Chart ofAccounts that match the classification used in respective periodic financial statements. The WSBs’ existing accounting and reporting systems that include General Ledger systems will be used to account for project resources and activities. System standards will include (i)monthly balancing ofaccounts and reconciliation with the parent ministry general ledger; (ii)arrangements for safe custody and sequential filing ofaccounting documents; (iii) timely and accurate production ofperiodic reports; (iv) reconciliation of subsidiary accounts; and (v) effective internal control arrangements. All the 3 implementing entities have adopted the Great Plains computer accounting software. AWSB has fully implemented this system.
75 LVNWSB and CWSB are running the computer system in parallel to their manual systems. They are in an advanced stage ofimplementation ofthe computerized system, but have not yet fully changed over to the computerized system. While accounting in LVNWSB and CWSB is generally timely, there have been moderate delays in finalization ofthe annual accounts. Given this situation, LVNWSB and CWSB would conduct an in-depth examination ofthe functioning oftheir accounting system. Improvements identified would be implemented in the early period ofproject implementation. This would be monitored during project supervision.
23. Staffing. Staffing for the FM function in the 3 WSBs is overall adequate, although there is need to complete the recruitment ofsome support staff positions. The respective institutions have clearly defined their organization structures and are adequately staffed on the managerial and professional areas. The 3 WSBs have all hired appropriately qualified finance managers (certified public accountants - CPAs). AWSB and CWSB also have other qualified CPAs working as accountants and financial analysts. The senior FM staffs for CWSB and LVNWSB are relatively new having been recruited within the past period of 12 months. However, there are some unfilled positions especially for support staff, and ongoing processes offilling vacant positions should be expedited. In particular, LVNWSB requires an additional senior accountant while CWSB needs 2 more assistant accountants in order to enhance the FM capacity. Board approval for the recruitment for the positions under CWSB is still being sought. The respective finance managers have committed that these additional staff would be in place by December 2007. c. Internal Controls
24. Institutional risk management policy framework. Opportunity Set Internal controls systems are '1 Espgctatims discussed in the following paragraphs. To further strengthen the project's control and accountability mechanisms, comprehensive risk assessments ofthe implementing entities are being carried out and mitigating action plans are being developed with contracted expert consultants. These would be coutrd I documented in an Institutional Risk Management Policy Manual. The Manual is expected to comprise a set ofpolicies, procedures and guidelines approved by the Board. Its development includes an internal assessment ofthe institution by all key responsibilities. The mitigating measures would be implemented during project implementation. The Manual would be updated as needed, typically under the leadership of Internal Audit. Development ofthe Institutional Risk Management Policy Manuals for the 3 entities and adoption ofaction plans to implement their recommendations is a Condition of Effectiveness.
76 25. This approach has been adopted from the COS0 framework, and aims at going beyond the effectiveness of "process" internal control mechanisms to increased awareness and responsiveness by management (particularly at the senior managementhoard level) to all types ofrisks that the institution faces. It pays attention to matters such as effective board and senior management oversight; adequate fiduciary operations policies, procedures and limits; adequate risk monitoring and management information systems; adequate internal controls; and effective operational, fiduciary, and other compliant handling arrangements.
26. Financial Management Manuals. The accounting, internal control processes, policies and procedures for the 3 entities have been captured in Financial Management Manuals which have been developed by the WSBs. The Manuals would be updated. based on the recommendations ofthe ongoing Institutional Risk Management Policy (RMP) Framework.
27. Internal Audit: All the WSBs have established internal audit functions. A qualified , public accountant (CPA) is the Internal Auditor in each ofthe 3 WSBs. AWSB and LVNWSB have adopted a risk-based audit approach that is designed to identify, assess and respond to operational risks on an ongoing basis. However, CWSB still conducts the traditional transaction based vouching (pre-auditing) internal audits. The internal audit function in the WSBs report to the respective Board ofDirectors through the Audit Committees
28. Measures to strengthen the internal audit function to increase its effectiveness are being developed as part ofthe Institutional Risk Management Policy Manual. The aim is to ensure that the internal audit mandates, reporting frameworks and functioning are guided by best practice guidelines issued by the international Institute ofInternal Auditors. The internal audit function in the WSBs is expected to present reports on at least a quarterly basis. The function will also be expected to conduct independent reviews ofinstitutional risk management arrangements on an ongoing basis, monitoring compliance with laid down policies and procedures, and reviewing and recommending enhancement ofaccounting and internal controls. The effectiveness of internal audit will be complemented by the institution ofperiodic audit issues follow-up by respective Board Committees which will also support the demand for internal audit services.
29. In addition to internal and external audits, systems audits have been conducted by the Kenya National Audit Office (KNAO) and/or a CPA firm within the past 12 month's period. These have highlighted some areas of internal control weaknesses and provided recommendations for improvements. Actions are being implemented by the respective WSBs. This will continue to be monitored.
30. Accountability and anti-corruption mechanisms. The WSBs have constituted Corruption Prevention Committees (CPC) and trained Integrity Assurance Officers (IAO) as a corruption prevention measure in line with the Government's Public Service Integrity Program (PSIP). The 3 WSB have set up corruption reporting boxes and AWSB has set up a website and installed a hotline as a public reporting and complaints receiving mechanism. Similar arrangements with the other 2 WSBs are at an advanced stage. In addition to the above, measures to strengthen public disclosure ofinformation and complaint handling mechanisms are being developed as part ofthe institutional risk management framework. These include:
77 a) Public disclosure ofinformation regarding; (i)activities funded under the project; (ii) periodic resource appropriation and accountability; (iii)project implementation progress and operational results; and (iv) sharing ofbest practice experiences amongst beneficiary entities. These are expected to be prominently disclosed including through the media.
b) Complaint handling mechanisms. Anti-comption hotlines including toll free communication lines and other complain handling mechanisms are expected to be establishedstrengthened with explicit arrangements for collation ofinformation, follow- up action and public reporting. It is proposed that collation and follow-up responsibilities are vested in Internal Audit and overseen by Board Audit Committees.
31. Oversight mechanisms. Oversight arrangements within the sector have been discussed in detail in Annex 3 and Annex 6. Major oversight mechanisms include:
a) The Water Act 2002 under which the WSBs are formed provide for formation ofWater Services Regulatory Board (WSRB) and the Water Services Appeal Board (WAB). The WSRB regulates the activities ofthe WSBs. The WAB hears and determines disputes relating to water. There is also an oversight role played by the MWI.
b) The MOF External Resources Department carries out regular project monitoring.
c) Respective Boards ofthe WSBs will oversee the utilization offunds to meet the eligible expenditure based on approved budgets and work plans, following the procedures as set out in respective Financial Management Guidelines and manuals.
d) Audit and Finance Committees. The Institutional Oversight Committees namely, the Audit and Finance sub-committees have been constituted and are operational for the 3 WSBs. Measures to strengthen these committees and their mandatekerms ofreference are being developed as part ofthe Institutional Risk Management Policy Manual. The aim is to ensure that the respective oversight entities be provided with clear mandates and specific guidelines regarding their oversight responsibilities. The guidelines should include definition ofworking relationships with respective entities’ management staff, clear channels ofcommunication and handling ofgrievances and mechanisms for conflict resolution. It is expected that:
i) The Audit Committee will be responsible for functionsz8 including; (i)monitoring implementation ofthe RMP Manual; (ii)monitoring and ensuring timely implementation ofaudit and operational review recommendations ofvarious fiduciary oversight responsibilities including, internal and external auditors, Government project monitoring agencies and IDA periodic review and supervision missions; (iii)overseeing the continuing efficacy of accounting and internal control standards, policies and practices; (iv) ensuring compliance with
28 Based on Government Treasury Circular No 16/2005 titled “Establishment and Operationalization of Audit Committees in Public Service” dated October 4,2005.
78 legal covenants ofthe IDA bdingagreement; (iv) overseeing the effectiveness ofthe internal audit functions; and, (iv) monitoring performance ofkey internal audit staff against approved performance contracts.
ii) The Finance Committee will be responsible for: (i)review and approval of quarterly financial reports including the quarterly un-audited Interim Financial Reports (IFR); (ii)approval ofperiodic operational budgets and financial performance; (iii)review and approval ofannual financial statements; and (iv) monitoring the performance ofkey financial management staff against approved performance contracts. d. Financial Reporting
32. The Great Plains computer accounting software used by the 3 entities is capable of generating monthly and quarterly reports.
33. Un-audited Quarterly Interim Financial Report (IFR): Each ofthe 3 entities would submit quarterly IFRs for the project within 45 days after the end of the quarter to which they relate. In order to meet this deadline, respective Boards will issue internal reporting timelines, to be included in respective guidelines / Financial Manuals. The IFR will cover all project activities, including those financed by counterpart funding. The formats ofthe IFRs have been discussed and agreed at negotiations. The IFRs will include the following:
A statement of sources and uses offunds for the reported quarter and cumulatively since project inception, reconciled with bank, cash and other fund balances at the end ofthe quarter; An analysis of sources offunds (receipt) by date and amount for each source; An analysis ofuses offunds (expenditure) by project expenditure categories and components against the budget, with explanations for significant variances; An expenditure forecast for the next two quarters (6 months) as a basis for justifying the amount ofthe additional cash replenishment required into the Designated Account; The Designated Account Activity Statement, reconciling the receipts into and payments out ofthe project’s Designated Account; Supporting bank statements and reconciliations for the bank, cash and other fund balances at the end ofthe quarter;
Possible risks to be monitored are noted below:
Obtaining bank statements from overseas Designated Accounts is often delayed. This could negatively affect preparation and submission ofthe IFR. The bank statements are required to facilitate the reconciliation ofthe Designated Account in the IFR and these statements are also required by the Bank’s Disbursement Unit for processing the Withdrawal Application.
79 b) AWSB has adequate capacity to generate timely reports. However, there are delays by LVNWSB and CWSB in preparing their own interim and annual reports. As noted above, this has been occasioned by the fact that they are yet to change-over fully to the computerized accounting system. There is also a need to increase the FM support staff in these entities. These issues are currently being addressed, and are expected to be completed before project start. LVNWSB and CWSB do not have prior experience with World Bank-financed projects. The Bank plans to conduct a fiduciary capacity building event covering the World Bank procedures for FM, Procurement and Disbursement (expected by December 3 1, 2007).
35. Annual Audited Financial Statements: The annual audited financial statements of each ofthe 3 entities together with the auditor’s report and the management letter would be submitted to the Bank within 6 months after the end ofthe financial year to which they relate. These statements would be prepared following the International Financial Reporting Standards (IFRS). Project financial statements (i.e., information m the sources and uses offunds associated with this project, and the Designated Account) would be separately provided or included in the entity financial ~tatements.~’The formats ofthe project financial statements were discussed and agreed at negotiations. e. Flow of funds and disbursement arrangements
36. Bank Accounts. Each ofthe 3 implementing agencies would have their own IDA Designated (Special) and Project Accounts. The following bank accounts will be used to channel project resources:
Desiznated Accounts - Government will establish 3 US dollar Designated Accounts that will receive IDA deposits/transfers from the credit account. The accounts will be managed by MOF in accordance with Government procedures for the management of Special Accounts. The Designated Accounts will be used for IDA share ofproject costs.
Project Accounts - Local currency project accounts will be the primary source offinance for project activities and will be managed directly by respective WSBs. Remittances from corresponding Designated Accounts will flow through the MWI, Paymaster General account to Project Accounts in line with Government procedures. These bank accounts, including Government depositing ofthe initial tranche of counterpart funds, are expected be operational by credit effectiveness.
37. The check payment procedures for the WSBs provide for 2 signatories to all the checks namely, the Chief Executive Officer (CEO), and either the Head ofFinance and/or Administration or the Head ofTechnical Services. In the absence ofthe CEO, both managers would be required to sign the checks. These arrangements are satisfactory.
38. Flow of Funds. The hnds flow procedures are relatively simple. (i)IDA will make
29 The preferred method is to include these in the entity financial statements as notes or supporting schedules or statements.
80 initial advance disbursements from the proceeds ofthe Credit by depositing into Recipient- operated Designated Accounts; (ii)thereafter IDA will replenish the Special Account based on cash forecasts given in the interim financial reports (IFR); and (iii)counterpart funds and transfers from the Special Accounts will be deposited in respective WSBs’ Project Accounts in accordance with Government exchequer control and funding arrangements.
39. Counterpart funds. Water Service Boards (WSBs) / Government will ensure the availability ofcounterpart funding contribution into the Project Accounts. Counterpart funds will be allocated from WSBs revenue or through the normal Government budgetary process.
IDA Disbursements method: Report- based Disbuhements: IDA disbursements will be made into the respective Designated Account based on quarterly IFRs which would provide actual expenditure and cash flow projections for the next 2 quarters. Initial cash flow forecasts upon which the advance disbursement will be made from the IDA Credit should be prepared by Date ofEffectiveness. A duly authorized Withdrawal Application for the additional cash replenishment required into the Designated Account will be provided along with the IFRs. The IFR together with the Withdrawal Application (WA) will be reviewed by the Bank’s Financial Management Specialist (FMS) and approved by the Task Team Leader (TTL) before the request for disbursement is processed.
Other Methods: In addition, whenever needed the direct payment method of disbursement, involving direct payments to suppliers for works, goods and services upon the recipient’s request, may also be used. Payments may also be made to a commercial bank for expenditures against pre-agreed special commitments. These payments will also be reported in quarterly IFRs. The IDA Disbursement Letter will stipulate the minimum application value for direct payment and special commitment procedures as well as detailed procedures to be complied with under these disbursement arrangements.
Remedies for non compliance. If ineligible expenditures are found to have been made from Designated Accounts, the recipient will be obligated to refund the same. If the Designated Account remains inactive for more than six months, IDA may reduce the amount advanced. IDA will have the right, as to be reflected in the terms offunding agreement, to suspend disbursement ofthe funds if significant conditions, including reporting requirements, are not complied with.
42. Improvements to funds flow arrangements. Improvements required to funds flows processes are noted below. These are portfolio-wide issues on which the Bank is having dialogue with the Government through MOF:
a) Simplification of the funds flow process. From previous experience with the previous World Bank-financed project implemented by AWSB, it was noted that the process for accessing funds through the government system is long and bureaucratic. The Ministry of Finance (MOF) maintains Designated (Special) Accounts in overseas countries. It takes over 3 months to obtain bank statements to facilitate the preparation ofIFRs and Withdrawal Applications (WA). It also takes over a month to move funds from the
81 Overseas Accounts to the Project Accounts. Further delays ofup to 5 months occur as the project processes the disbursements through the Ministry ofWater and Irrigation (MWI), which is the parent ministry and also the Ministry ofFinance. This results in delays in payments to suppliers, exposing the project to increased prices on future procurement and late payment penalties. For example, on the on-going project, AWSB has not paid suppliers US$320,000 (equivalent to Ksh22.4 million) for goods and services supplied in June 2007. The Ministry ofFinance (MOF) through the Internal Auditor General (IAG) should assess payment funds flow procedures with a view to improving efficiency, effective control and timeliness. Key considerations in the process include (i)stop the practice ofholding Designated Accounts in foreign bank accounts and instead open the accounts in the Central Bank ofKenya or in local commercial banks, (ii)reduce some of the procedures which may not be adding value to the process and in particular assess whether the project can make applications and receive money directly from the Ministry ofFinance without having to go through the MWI and (iii)developing benchmark processing timelines to be adopted and monitored.
b) Difficulties of getting Designated Account bank statements: Another problem is the delays in getting the bank statements for the Designated Accounts which are usually off- shore accounts. It sometimes takes between 3 to 7 months to obtain these statements through the Central Bank ofKenya (CBK). These statements are essential to support the Withdrawal Applications (WA) and also for preparing the bank reconciliation statements which is required to support replenishments into the Designated Account. The Government has confirmed that given the easing offoreign exchange restrictions and the enactment ofthe Financial Management Act (2005), ministries and departments are now allowed to open and maintain foreign currency accounts in local commercial banks. It is expected that this problem will be mitigated in the future. f. External Auditing
43. The external audits for the 3 entities are conducted by the Kenya National Audit Office (KNAO). Under Kenyan legislation, the responsibility to audit all Government hnds and activities is vested in KNAO, which is mandated to subcontract such services in the event of capacity or other constraints. The KNAO is considered to be sufficiently independent, applies internationally acceptable auditing guidelines and therefore, acceptable to IDA. There have been significant improvements in the KNAO’s ability to ensure timely auditing and reporting, although timeliness across the Bank-financed portfolio still needs improvement. This is being addressed through proactive and early dialogue and follow-up.
44. AWSB has been submitting its entity financial statements (including information on project funds) to the Bank, under the ongoing Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP). The recent audit report for AWSB for the year ended June 30, 2006 was submitted on time within the required 6 months. No major issues have been flagged by the auditors, and a qualification relating to a procedural issue in the latest audit report has been since addressed. During appraisal, entity audit reports for the LVNWSB and CWSB for the year ended June 30,2006 were also reviewed. These reports were issued about 9 months after the end ofthe financial year. The weaknesses noted above in their financial reporting systems
82 contributed to the delay. The audit report on LVNWSB had qualifications relating to non- valuation and omission ofthe assets that LVNWSB inherited from the MWI and NWCPC. The audit report for CWSB had qualifications relating to omission ofassets and liabilities inherited from MWI and NWCPC; adequacy ofthe provision for bad and doubtful debts; and omission of staff imprests from the financial statements. While these do not significantly impact on the project, the entities’ response and follow-up actions on these is important, and would be monitored and followed-up during project supervision. The auditors’ Management letters for the 3 entities also highlighted internal control weaknesses and lapses in procedures. Managements ofthe respective entities have provided responses and committed to addressing the issues flagged in the Management Letters and the other audit reports. This would also be monitored and followed-up during project supervision.
45. The Terms ofReference for the external audit was discussed and agreed at project negotiations. As noted above, the project financial statements would be included as a part ofthe entity’s financial statements. The audit TOR provides for the project financial statements to be audited as part ofthe entity audit, including examination by the auditors ofthe IFRs used as the basis for IDA disbursements and the activities ofthe Designated Account. A single audit report for each entity is preferred Le., the report on the Project Financial Statements (including IFRs and Designated Account) could be included in the entity audit report. Alternatively, the report on the project financial statements (including IFRs and Designated Accounts) could be separately provided.
46. The audited financial statements, Auditor’s Report and Management letter for each ofthe 3 entities will be submitted to the Bank as soon as available but in any case within 6 months of the end ofthe financial year to which they relate. The project is expected to become effective in January 2008. The first audit report would be prepared for the period until June 30,2008 and would cover activities from the start ofthe project until that date. Audit reports to be submitted are summarized below:
Audit Report Due Date AWSB: Entity Financial Statements By December 3 1 each year (starting 2008) AWSB: Project Financial Statements (including By December 3 1 each year (starting 2008) IFRs and Designated Account) LVNWSB: Entity Financial Statements By December 3 1 each year (starting 2008) LVNWSB: Project Financial Statements (including By December 3 1 each year (starting 2008) IFRs and Designated Account) CWSB: Entity Financial Statements By December 3 1 each year (starting 2008) CWSB: Project Financial Statements (including By December 3 1 each year (starting 2008) I IFRs and Designated Account) Note: A single audit report for each entity is preferred i.e., the report on the Project Financial Statements (including IFRs and Designated Account) could be included in the entity audit report.
47. To meet the above deadline, the 3 WSBs have committed to the following timetable (subject to capacity constraints ofKNAO):
No. 1 Activity Date
~~ I accounts) by WSBs 2. I Invitation of Auditors I 1“Week ofAugust
83 3. Audit exercise August to September 4. Issuance ofManagement Letter September 30 5. Management response to management letter By mid October 6. Issuance of Draft Audit Certificate By end of October 7. Issuance of Final Audit Certificate November 30
VI. SUMMARY OF STRENGTHS AND WEAKNESSES
48. The major strengths ofthe project financial management system are: AWSB have past experience in implementing a World Bank-financed project and the entity has been taking the lead role and guiding the other two WSBs. 0 Oversight mechanisms are strong with a relatively independent Board ofDirectors in the 3 WSBs, Finance and Audit Committees, and external oversight mechanisms. All the WSBs have well qualified professionals in their financial management and internal audit functions. 0 Project FM arrangements are well integrated into the existing entity FM systems. 0 Strong audit arrangements are in place, including audit by the KNAO, supplemented by other periodic audits such as systems audits. 0 Funds flow arrangements are simple and straightforward. 0 WSBs have adopted international financial reporting standards, and the external audit is also conducted following international standards on auditing.
49. Areas ofweaknesses that need to be addressed and monitored are: 0 There are residual gaps in support staff for the FM function in LVNWSB and CWSB that need to be filled. 0 Lack ofappropriate experience by LVNWSB and CWSB accounts staff on World Bank policies and procedures. The computerized accounting system in LVNWSB and CWSB has not been fully implemented, although advanced. 0 Country/portfolio level issues that will likely impact on this project: (i)delays in processing Withdrawal Applications (WAS)for reimbursement through MWIand MOF; (ii)delays in getting Special Account bank statements from the off-shore accounts resulting in delays in processing WAS; (iii)cumbersome budgetary processes through MWIand MOF. Delays in finalizing accounts and external auditing reports for CWSB and LVNWSB.
Actions to address these have been discussed in preceding paragraphs and are summarized in the ‘FM Action Plan.’
84 VII. FM RISK ASSESSMENT
Residual Brief Explanation Risk mitigating measures Condition of Risk incorporated into project design Effectiveness Rating (YIN)?
Country Level S Takes into account overall country Issues are being addressed at the No governance environment, weak country level through the country’s r judiciary and corruption concerns governance action plan, strengthening of the public financial management system (supported by the Bank through the Institutional Reform and Capacity Building Project). Entity Level S Two of the three implementingentities AWSB has been supporting the No (LVNWSB and CWSB) are relatively other 2 entities, and will new entities. So risk is rated substantial continue to do so. until develop further. However, AWSB Training by World Bank on FM, has a track record of good performance Procurement and Disbursement under an ongoing Bank-financed procedures. project. The project will support overall 1 institutional capacity strengthening including improved management and Board oversight. Project Level M Project design is not complex (3 Clearly defined activities and funds No implementing entities; all project funds flow mechanisms to the 3 entities. r will be handled and accounted by these 3 entities). OVERALL S INHERENT
CONTROL RISKS Budgeting M Inefficiencies in budget allocation Detailed project budgets have No processes. been prepared and agreed. Regular reporting including variance analysis. Discussions among the various agencies (WSBs, MWIand MOF) to identify improvements to budgetary processes. Accounting S LVNWSB and CWSB are in an Action plan to address residual No advanced stage of implementation of the weahesses in the WSBs computerized system, but have not yet including: (i)filling the vacant fully changed over to the computerized positions for support staff system. They also have residual (CWSB and LVNWSB); and staffing gaps (for support staff). (ii)review and upgrading of accounting systems (CWSB and LVNWSB). The project will support strengthening institutional capacity of the WSBs including on accounting.
r 85 Type of Risk Residual Brief Explanation Risk mitigating measures Condition of Risk incorporated into project design Effectiveness Rating (ym)? Internal S This takes into account the country- An Institutional Risk Management Yes Controls level fiduciary and governance Framework is being developed to environment which also impacts on the put in place enhanced controls and project agencies. oversight mechanism. This also includes mechanisms to strengthen key control functions such as internal audit, Board oversight committees, improve transparency and disclosure, etc. Implementation of such mechanisms would be supported through the project. Funds Flow S Funds flow mechanisms for the project Ongoing dialogue at the country No are simple. Funds flow issues could and project levels to identify arise due to country I portfolio-level mechanisms to address these issues relating to the current processes countrylportfolio-level issues. for maintenance and operation of Designated Accounts, and delays in obtaining Bank statements. Financial S Possible delays in reporting due to the Outlined under “Accounting” and No Reporting residual weaknesses in accounting (in “Funds Flow” above LVNWSB and CWSB), and the funds flow issues (generic to all projects) Auditing M Strong audit arrangements are in place. Commitment by WSBs to a clear No LVNWSB and CWSB have had delays timetable of actions to ensure timely in finalizing audits in the past due to audit reports accounting weaknesses. Issues Continued action by WSBs to highlighted in audit reports needs to be satisfactorily address issues followed-up and addressed. highlighted in audit reports, auditors’ management letters, systems audit report and other reviews. Monitoring by Bank OVERALL S CONTROL RISK OVERALL S RISK H = High; ; = Substantial; M = Modest; L =Low.
VIII. FINANCIAL MANAGEMENT (FM) ACTION PLAN
The action plan below indicates the actions to be taken and the dates by which the actions are due to be completed as well as the person(s) responsible for the specific actions.
Action Date due by Responsible
1. Development ofInstitutional Risk Management Policy Effectiveness WSBs Manuals and adoption of action plan by the 3 WSBs 2. Action plan for addressing residual FM weaknesses in the At Negotiations WSBs WSBs including: (i)filling the vacant positions for support staff (CWSB and LVNWSB); and (ii)review and upgrading of accounting systems (CWSB and LVNWSB).
86 Action Date due by Responsible
Continued action by WSBs to satisfactorily address issues Continuous WSBs highlighted in audit reports, auditors’ management letters, F systems audit report and other reviews Training by World Bank on FM, Procurement and December 3 1,2007 WSBs and WB Disbursement procedures Discussions completed among WSBs, MWI and MOF to I February 28,2008 I WSB and MWI / assess and reduce delays in funds flow process and to MOF improve budgetary processes, and agreed actions implemented Opening of Designated Accounts and Project Accounts February 1,2008 WSB and MOF and depositing the required counterpart funds to facilitate disbursements and enable project implementation Having specific budget codes in the GOK budget and March 3 1,2008 WSB and MOF having infrastructure development for WSS in the relevant districts channeled through the WSBs Issuing TOR to external auditors March 3 1,2008 WSBs Implementation ofrecommendations of the Institutional During project WSBs Risk Management Policy Framework, including measures implementation to firther strengthen internal audit, strengthen the mandate and operation of key Board committees (Finance Committee and Audit Committee), identify improvements to Financial Management Manuals ofthe WSBs, and measures to strengthen public disclosure ofinformation and complaint handling mechanisms.
IX. CONDITIONALITY AND FINANCIAL COVENANTS
50. Condition of Effectiveness: The following condition has to be met before Effectiveness ofthe IDA Credit (subject to further additions andor confirmation during Negotiation): Institutional Risk Management Policy Framework satisfactory to the Association has been established by AWSB, CWSB and LVNWSB; The Financing Agreement and Project Agreements (one each with AWSB, CWSB, and LVNWSB) have been signed; The subsidiary Agreements (SAs) between MOF and AWSB, CWSB and LVNWSB respectively, which are acceptable to the Bank, have been signed; The Model Utility Provision Agreement between WSB and WSP, which is acceptable to the Bank, has been submitted; and Legal Opinions satisfactory to the Association on the negotiated Legal Documents have been forwarded to the Bank.
Other FM related conditions: Financial Management Arrangements: The WSBs are required to ensure the continuing adequacy offinancial management arrangements over all aspects ofthe project until the project is completed. In this regard, the WSBs shall ensure that a financial management system is maintained in accordance with the provisions ofSection 2.07 ofthe Standard Conditions.
87 b) Interim Financial Reports (IFR): The WSBs shall ensure that quarterly un-audited Interim Financial Reports (IFR) are prepared and hrnished to the World Bank not later than 45 days after the end ofeach calendar quarter, covering that quarter, in form and substance satisfactory to the World Bank c) Financial Statements and Audit Report: The WSBs shall prepare Financial Statements for the project as part oftheir entity financial statements, starting from the year ending June 30,2008 and thereafter for every financial year, in form and substance acceptable to the World Bank. The WSBs shall have these Financial Statements audited in accordance with the provisions ofSection 2.07 (b) ofthe Standard Conditions. The audited financial statements, the auditor’s report and the management letter shall be submitted to the Bank as soon as available but in any case within 6 months after the financial year end to which they relate.
X. IMPLEMENTATION SUPPORT PLAN
52. Based on the outcome ofthe financial management risk assessment, the following implementation support plan is proposed:
FM Activity Frequency
Desk reviews Interim financial reports review Quarterly Audit report review (entity and project) Annually Review ofother relevant information such as systems audit As these become available reports On site visits Review ofoverall operation ofthe FM system Six monthly (Implementation Support Mission) Monitoring of actions taken on issues highlighted in audit reports, As needed auditors’ management letters, systems audit report and other reviews Transaction reviews (if needed) As needed Capacity building support FM training sessions Before project start and thereafter as needed
53. The objectives will include that ofensuring that satisfactory financial management systems are maintained for the project throughout its life.
88 Annex 8: Procurement Arrangements KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Procurement Environment
1. Kenya’s first National Procurement Law (The Public Procurement and Disposal Act 2005) was passed by Parliament in October 2005 and came into force in January 2007. The Regulations supporting the Law were also published by the Minister for Finance in January 2007. Prior to the operationalization ofthe Law, procurement under the public sector had been governed by a set ofRegulations (the Public Procurement Regulations 2001) issued by the Minister for Finance in 2001 and amended in 2002.
2. The Public Procurement and Disposal Act (2005) creates a central Public Procurement Oversight Authority (PPOA) to replace the Public Procurement Department (PPD) created under the Regulations (2001) in the Ministry ofFinance. The Act also re-establishes the Public Procurement Complaints, Review and Appeals Board (the Appeals Board) which had been in operation since 2001. In addition, all public procuring entities have a Procurement Unit and a Tender Committee which are responsible for the implementation ofprocurement process ofthe procuring entities. The Executive Officers ofthe procuring entities together with their Tender Committees are accountable for the procurement decisions oftheir entities.
3. Public Procurement in Kenya is recognized as a very important process via which over 70% ofpublic hnds (excluding staff emoluments, debt servicing and other statutory payments) are spent. A major challenge in Kenya is to ensure sound and efficient public procurement systems that ensure value for money, efficiency in service delivery and transparency, including providing equal opportunity to the bidding community. It also recognized that corruption in public procurement is a major issue in Kenya as it has a negative impact on public hnds intended for public good and its resultant economic growth.
4. Among the overarching features ofthe Procurement Law towards promoting transparency and accountability ofpublic procurement decisions include specific provisions for administering security-related procurement which has hitherto been vulnerable to corrupt practices. In addition, the Government has established a number ofcomplimentary anti- corruption legislative and administrative instruments. In 2003 , it enacted an Anti-Corruption and Economic Crimes Act which creates the Kenya Anti-Corruption Commission (KACC) - an independent body corporate with immense powers relating to the fight against corruption, accountable to Parliament, and the Kenya Anti-Corruption Advisory Board (KACAB). The KACAB members were drawn from the civil society, professional bodies, trade unions, and religious sectors, vetted by Parliament and appointed by the President. In the same year, a Public Officer Ethics Act was and enforced. This Act provides for Codes ofConduct and Ethics for all public officers to enhance ethics and integrity in the Public Sector and govern the wealth declaration process. The Government introduced Performance Contracting for public agencies (parastatals in 2004/05 and Government Ministries and Departments in 2005/06). Chief Executives of all public agencies are required to sign Performance Contracts on behalf oftheir respective agencies. One aspects ofperformance contracting, which every agency is assessed on, is the initiation of anti-corruption measures to curb corruption.
89 5. Under its Governance Action Plan, the Government has included implementation ofthe following procurement reform actions: 0 Inject sunshine principles in bidding and procurement contracts including (i)ensuring all Ministries, Departments and agencies publish the information on contracts required by law on a Government website; and (ii)ensuring the website is working effectively and is accessible to the public; 0 Introduce a Vetting System to pre-qualify companies interested in bidding for Government contracts to address the issue ofconflict ofinterest; 0 Establish a mechanism for reporting and enforcing the current provision ofthe law on “Blacklisting” companies; 0 Introduce e-procurement.
Assessment of the Agencies’ Capacity to Implement Procurement
6. All the three Water Service Boards (WSBs) were created under the Water Act (2002) and started their operations in 2004. They are managed by a Board ofDirectors through CEOs who are assisted by departmental managers in carrying out the day-to-day operations. Though their mandates are identical, the size ofdepartments and workforce ofthe three Boards vary. However, they all have, in their structure, a Finance Department (FD), a Technical Department (TD) and Tender and Procurement Committees.
7. The Tender and Procurement Committees ofeach Board is responsible for the financial management and procurement under the Board. FD discharges these responsibilities through an Accounts Unit and a Procurement Unit (PU) respectively. The Procurement Units are each run by a team of2-3 members including the Head ofthe Unit. In the administration ofprocurement processes and decisions, the Procurement Units highly depend on the inputs and expertise primarily ofthe staff ofthe TDs.
8. An in-depth procurement capacity assessment was carried out during Project Pre- appraisal and updated during Appraisal, which rates the procurement risk ‘average” due to the following: (i)the proposed executing agencies: AWSB, LVNWSB, and CWSB created under the Water Act (2002) are operational and staffed; (ii)the procurement staff and some technical staff are knowledgeable in National procurement procedures and with the exception ofCWSB, staff ofthe other two have had training in Bank procedures; However, in all the WSBs refresher courses and hands-on training will be necessary.
9. The procurement risks associate with the project as well as the wider national environment and wider proposed mitigation measures are presented in Table A8.1,
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k LE c E m ; 4-u i 0 LE N9 -II 0 Procurement Arrangements
10. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" current edition; and "Guidelines: Selection and Employment ofConsultants by World Bank Borrowers'' current edition, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed between the Recipient, AWSB, CWSB and LVNWSB and the Bank in the Procurement Plan. The first Procurement Plan will cover contracts to be carried out in the first 18 months ofproject implementation and updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
11. Procurement of Works: A total ofabout US$107,500,000 ofworks would be procured under this project which will include (i)civil works comprising construction or rehabilitation of water and sewerage infrastructure including water mains, distribution lines, trunk sewers, treatment plant, and (ii)minor civil works and building rehabilitation as required. (see Annex 4 for detailed descriptions). Contracts for civil works under (i)above costing the equivalent of US$500,000 or more will be procured following ICB procedures. Prequalification of contractors will be used only for large contracts over US$lO million, and in cases where special expertise is required, using IDA Guidelines and Bank Standard Bidding Documents for large works modified to meet project needs. The Bank's current Standard Bidding Documents for Works will be used for ICB contracts. National Standard Bidding Documents that are acceptable to the Bank can be used for NCB contracts whose value range between the equivalent US$50,000 or more and less than US$500,000 per contract. (Bank Standard Bidding Documents shall be utilized until such time as the National Standard Bidding Documents are cleared by the Bank). Works which are estimated to cost less than the equivalent ofUS$50,000 will be procured through Shopping. On exceptional basis and upon prior agreement ofthe Bank, works may be procured through Direct Contracting.
12. Procurement of Goods: A total ofabout US$6,206,000 ofgoods would be procured under this project which will include: (i)procurement ofoffice equipment and various utility management and financial management soffware systems, (ii)procurement ofvehicles, and (iii) procurement ofbulk and consumer meters, pipes and fittings, laboratory equipment. (see Annex 4 for detailed descriptions). Contracts costing the equivalent ofUS$250,000 or more will be procured following ICB procedures. The Bank's current Standard Bidding Documents for Goods will be used for ICB contracts. National Standard Bidding Documents that are acceptable to the Bank will be used for NCB contracts whose value range between the equivalent US$50,000 or more and less than US$250,000 per contract (Bank Standard Bidding Documents shall be utilized until such time as the National Standard Bidding Documents are cleared by the Bank). Goods which are estimated to cost less than the equivalent ofUS$50,000 will be procured through Shopping. On exceptional basis and upon prior agreement ofthe Bank, goods may be procured through Direct Contracting.
94 13. Selection of Consultants: A total ofabout US$13,900,000 ofconsulting services will be procured under the project to carry out assignments in the following areas ofexpertise: technical assistance for M&E, engineering, financial, legal, assets valuation services, audits, informal settlement WSS programs, communications, environmental and social monitoring, institutional reviews, capacity building and institutional development. Contracts for consulting services will, as far as feasible, be awarded following the procedure ofQuality and Cost Based Selection (QCBS); Procedure ofQuality-Based Selection (QBS) would be followed for assignments which meet the requirements ofparagraph 3.2 ofthe Consultant Guidelines; Procedure ofFixed Budget (FBS) would be followed for assignments which meet the requirements ofparagraph 3.5 ofthe Consultant Guidelines; and Procedure ofSingle-Source Selection (SSS) would be followed for assignments which meet the requirements ofparagraphs 3.9-3.12 ofthe Consultant Guidelines and will always require the Bank’s prior review regardless ofthe amount. Consulting services estimated to cost less than US$200,000 per contract under this project would be procured following the procedures of Selection Based on Consultants’ Qualifications (CQS). Procedures ofSelection ofIndividual Consultants (IC) would be followed for assignments which meet the requirements ofparagraph 5.1 and 5.3 ofthe Consultant Guidelines. Least-Cost Selection (LCS) would be used for assignments for selecting the auditors. For all contracts to be awarded following QCBS, QBS, LCS and FBS, the Bank’s Standard Request for Proposals will be used. Sample documents for small consulting assignments will be prepared by the WSBs procurement officer with the Bank’s assistance. Contracts for which short lists may consist exclusively of local consultants will be determined in the procurement plan on the basis ofits nature and availability offirms.
14. Training, Workshops, Study Tours. A total ofabout US$2,300,000 is allocated for training and capacity building activities. Yearly training plan will be cleared by the Bank and these activities would be disbursed against reasonable actual costs. The Board members will be trained in areas such as financial management, procurement, as well as monitoring and evaluation and communications, policy and regulations, etc.
15. Operating Costs. The total ofabout $720,000 is allocated to support the initial working capital ofAWSB, CWSB, LVNWSB and beneficiaries WSPs including costs associated with the purchases ofchemical, electricity, utilities, office supplies, consumables, fuel, and maintenance ofvehicles. Procurement ofgoods and services financed under the Operating Cost will be procured in accordance with the Government administrative procedures satisfactory to the Bank.
Procurement Plan
16. The implementing agencies, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. The plan was agreed between the Recipient and the Project Team during the project negotiations. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
95 Frequency of Procurement Supervision
17. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the implementing agencies has recommended two supervision missions to visit the field to carry out post review ofprocurement actions.
Table A: Thresholds for Procurement Methods and Prior Review
Expenditure I Contract Value Procurement Contracts Subject to Category Threshold (US$) Method Prior Review soo,ooo ICB All contracts Y0,OOO NCB Y 50,000 <500,000 (except for C WSB where 1. Works thefirst two NCB contracts of any value would be prior review) Shopping None ICB All contracts NCB Y50,OOO <250,000 (except for CWSB where 2. Goods the$rst two NCB contracts of any value would be prior review) Shopping I None 3. Consultant Services, Training Finns No Limit Y00,000 400,000 Y00,000 iQSS (except for C WSB where FBS the first two contracts LCS would be prior review)
<100,000 sss All Contracts Individuals s0,ooo Individual All contracts consultants <50,000 Individual None consultants (except for C WSB where thefirst two contracts would be prior review)
<50,000 sss All Contracts
96 Details of the Procurement Arrangements (lst18 Months of Project)
1. Goods, Works, and Non Consulting Services
ATHl WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS -WORKS CONTRACTS
Estimated Cost Procurement Pm or Post Review by Bank Bid submission S No Project Description USD Method Qualifications (PriodPost) Opening
Nairobi City Disbibution Network and omer Areas. 1,503,239 ICB Post Qualification Prior Review 17-Mar48 Rehabiitation 8 Improvements to General WaNibi Steer Elderama Ravine Road, Makadara and Mbotela Estates and Extensions to Shauri Moyo and Maringo Estates
New disbibution main hum Kambu Reservoir to Mombeaa 8,571.429 ICB Post Qualification Prior Review 11Jan-09 Road. Reinfomment of DisbibuQn Network Supply to Informal SeUlements 8 Periurban area8 (Ruai, 1,087,143 ICB Post Qualification Prior Review 11Jan49 Ghurai. Kibera and Garden Road) Consbuobon of Addlonal Raw Water Main hom Mateam to
200,000 ICB Post Qualification Prior Review 22-Apr48 8 On site sanitation 8 Hygiene. ConsbucdOn of VIP Labinas etc I I I I I I I I RehaEonof Kanobangi STP and Reconshobon of 7,323,803 I ICB I Post Qualification I Pnor Review I 11-Apr-09 Ngong River Twnk Sewers I I I I
ter Supply. Rehabilitation 8 Extension of I. Rehab, WTW, Storage, Dist System 8
I I I I I I 75,000 NCB Post Qualification Post Review 15-Jul-08 15 Refurtisnments for WAB I I I I Office I I I I
97 ATHl WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS - GOODS CONTRACTS
nofl
15,000 I NCB Post I 01-Feb08 2 Office Furniture I I I
135,000 I NCB 1 Post I 07-Feb08 IO Operational vehicles -3 Nos 4 x 4 Double Cab I I I
98 COAST WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS - WORKS CONTRACTS
Estimated Cost Procurement Project Description USD method I No I 1 1 7,226,000 ICB 1 Rehabilitation of Mzima Pipeline
12,376,000 ICB 2 Rehabilitation of Marere Pipeline I I 1,938,000 ICB 3 Baricho Water Works Rehabilitation I I I 1,488,000 ICB 19-Nova8 4 Source improvement. Twi Wall FialdRikoni Pipeline
4,095,000 ICB 5 Mombasa Island Reticulation Improvement
750,000 NCB Postqualificabon [ Pnor Review 19-Nova8 6 Extending services to informal settlements (Bangladesh slum) I I I iI I 1,306,000 ICB Post-aualification I Prior Review I 19-Nova8 7 Mombasa town sewerage rehab and reinforcement
Malindi Towns ReticulationImprovement, 455,000 NCB 0
g Malindi North Rural Water Supply, 637,000 ICB
10 Malindi Sewerage Systems 1,488,000 ICB
Kilifi Town Water Reticulation,New Rasewir, and Kilifi Rural Water 910,000 ICB Postqualificaton [ Pnor Review I 03-DeG08 ,, I I Supply I I Rehabilitationand expansion of urban and rural water supplies for 455,000 NCB Post-oualification I Prior Review I 03-Deo08 12 Kwaia 13 Rehabilitation and expansion of urban and rural watarsupplies for tana 273,000 NCB River 14 Rehabilitation and expansion of Voi urban and Taita Taveta rural water 364,000 NCB supplies 15 Rehabilitation and expansion of urban and rural water supplies for 273,000 NCB Lamu 350,000 NCB Post-qualification I Prior Review 07-Apr-09 16 WSPs Offices I I I 60,000 NCB Post-aualification I Prior Reviaw I 0740r-09 17 CWSBOfficas
34,444,000 Total Cost 1
99 COAST WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS - GOODS CONTRACTS
E~,mrtedCart USD Procurement Review by Bank Submiasion of bid' RefNo Contract Description I 1 I Method (Prior or Post) &Bid opening 140,000 NCB Post I 08-Dee07
100,000 NCB Post 04-Mar48 12 Accounting and finandai management software
100,000 NCB Post 04-Mar-08 13 Emergency Spares & opradonal equipment
200,000 NCB Pre 04-Mar48 14 Metering improvement program
Sub total. WSPs 1,350,000 1,880,600 Total (CWSB + WSPa)
100 LAKE VICTORIA NORTH WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS - WORKS CONTRACTS
Reference Estimated Procurement Contract Description No Cost USD Method
REHABlLiTATlONAND EXPANSION OF WATER SUPPLIES 1 Rehabilitation of Malakisi and Kimilili Water supplies 2 Rehabilitation of Cluster 3 (Hamisi, Serem, Kaimosi, Jeptulu) 1,436,115 Rehabilitation of Musanda, Navakholo, Port Victoria and Sio Port water Post Qualification Prior Review 21-Jun-08 supplies 4 Rehabilitation of Kwanza water supply Post Qualification Post Review 21-Jun-08 Expansion of Mumias and Butere Water Supplies including the 08-JuM8 construction of Mumias sewerage and Butere on site sanitation Expansion of water supply to Funyula including construction of on site sanitation Expansion ofwatersupply to Lessos including mnstruction of on site 872,859 sanitation Water supply to Cluster 1 (Lumakanda and Kipkaren) induding 1,730,993 08-Jul-08 lconsVumon of on site sanitauon ~~ ~~ lwater s.pp y to cluster 2 (~nesiiam nsia, Cneptals) ma.a ng s 2,767,254 Post Quallfzn- Prior Review 08-JuCO8 I ’ lconstruction of on site sanitation , I I 10 IExtending sewices to informal settlements Post Qualification I Prior Review I 08-Jul-08 11 ILVNWSB Upgrading office premises ~~ ~~ 12 WSPs Upgrading office premises Total Cost ?23,778,565
LAKE VICTORIA NORTH WATER SERVICES BOARD 18 MONTH PROCUREMENT PLANS - GOODS CONTRACTS
Estimated Cost Procurement Review by Bank Bid submission 8 Reference No Contract Dercrlption USD Method (PriorlPost) Opening
1 Operational vehicles and motor cycle 450,OW NCB Prior 29-FebO8
Office Equipment. Computers & Printers, photocopying machines, sewer machine (including networking) and other accessories 145,000 NCB Post 29-Feb-08
3 Communication equipment 35,000 SHOPPiNG Post 29-FebO8
4 Upgrading software 60,000 NCB Post 14-Mar48
5 OLefurnishing 60,000 NCB Post 14-Mar-08
6 Environmental Management (ESMF) 330,600 NCB Prior 21-Jun-08
7 Meters 116.000 NCB Post 29-Feb-08
8 Accountinglfinacial management software 50,000 NCB Post 29-Feb-08
9 Emergency spares and operational equipment 30,000 SHOPPING Post 29-FebO8 Emergency spares and Operational equipment 10 40,000 SHOPPING Post 28-Feb09 11 Emergency spares and operationalequipment 30,000 SHOPPING Post 28-Feb10 Total (LVNWSB + WSPs) 1,346,600
101 2. Consulting Services
ATHl WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS - CONSULTANCY SERVICES
Project Description
New Water Supply Scheme to Wote - Intake, Raw Water Malns,WTW, Dist System, Storage A Rehabiiitatlon Wwks (Design Review A Contact Supmidon)
102 COAST WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS - CONSULTANCY SERVICES
Estimated Cost Selection Review by Bank Ref No Description of Assignment USD Method (PriorlPoW cons"~n~
822,606 QCBS Prior Review 07-Feb08 1 Rehabilitationof Mzima Pipeline
1,102,254 QCBS Prior Review 07-Feb-08 2 Rehabilitationof Marere Pipeline
213,800 QCBS Prior Review 07-Feb-08 3 Baricho Water Works Rehabilitafion
148,800 QCBS Prior Review 21-Feb-08 4 Source improvement - Tiwi Well FieldRikoni Pipeline
529,500 QCBS Prior Review 21-Fob48 5 Mombasa Island Reficulationimprovement includingsewer rehab and reinforcement
37,300 Individual Post Review 21-FebO8 6 Extending services to informal setdements
1,670,000.00 I QCBS I Prior Review I 08Jui-08 . I 8 lproject communications TA I I I 100,0001 QCBS I Prior Review I 08-Jul-08 9 TA for monitoring and evaluation I I I 100,000 QCBS Prior Review 08-JuM8 11 TA for engineering
80,000 CQ Prior Review O8JuM8 12 TA for financial operations
80,000 I CQ I Prior Review I 08-JuM8 13 TA for legal I I I 60,000 CQ Prior Review 08Jul-08 14 TA for audits
60,000 CQ Prior Review 08-Jul-08 15 TA for informal settlement program
100,000 QCBS Prior Review 08Jul-08 16 TA for Communications
40,000 CQ Post Review 08Jul-08 17 TA for assessment of institutional framework
120,000 I QCBS I Prior Review I 08Jul-08 18 TA for asset valuation I I I I I I I I Malindi Towns ReficulafionImprovement, Malindi Nom Rural Water Supply, Malindi Sewerage Systems 288,000.00~ QCBS Prior Review 06-Mar48 19 I I I I I I I
I I I I I 101,000.00~ QCBS Prior Review 06-Mar-08 IKilif Water Reticulation,New Reservoir, and Kilifi Rural Water Supply I 1 20 Town I I I
156,500.00 QCBS Prior Review 06-Mar48 21 Rehabilitationand expansion of urban and rural water supplies for Kwale,Voi,Lamu,Hola
WSPS 100,000.00 QCBS Prior Review 08-Jul-08 22 Network modelling
150,000.00 QCBS Prior Review 08JuC08 23 Customer survey and mapping
6,139,760 I II Total Cost I I I
103 LAKE VICTORIA NORTH WATER SERVICES BOARD 18-MONTH PROCUREMENT PLANS - CONSULTANCY SERVICES
Reference Estimated Selection Revlew by Bank Description of Assignment No. Cost USD method (Post/ Prior) zr:rb:conrunantr
1 Supervision of rehabiltation works for Malakisi,Kimilili and Kwanza Water supplies 256,330 QCBS Prior 23-Mar-08 Supervision of rehabilitation works for Musanda, Navakholo, Port Victoria and Si0 Port water supplies and Cluster 3 (Hamisi, Serem, Kaimsi, Jeptulu) 211,540 QCBS Prior 23-Mar-08
Supervision of rehabilitation works for Mumias and Butere Water Supplies including the consbuction of Mumias sewerage and Butere on site sanitation and rehabilitation of water supply to Funyula including construction of on site sanitation 3 1,292,876 QCBS Prior O9Apr-08 Supervision of water supply to Lessos, Cluster 1 (Lumakanda and Kipkaren) and Cluster 2 4 (Chesikaki, Sirisia, Cheptais) including consbuction of on site sanitation and ewices in informal OBApr-08 settlements 587,110 QCBS Prior Total Consuitha SBMCRSfor works LVNWSB 2,347,656
104 Annex 9: Economic and Financial Analysis KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Economic Analysis
1. The main components ofthe project are: (i)rehabilitation and extension ofwater supply facilities; (ii)rehabilitation and extension ofwastewater and sanitation facilities; and (iii) institutional strengthening program. The proposed project is expected to: (a) increase access to reliable, affordable and sustainable water supply services; and (b) improve wastewater and sanitation services in the areas served by AWSB, LVNWSB and CWSB. A detailed cost-benefit analysis has been carried out to determine the ERR for the investments proposed in the three areas. A separate analysis has been carried out for urban towns and rural clusters taking into consideration the expected costs and benefits for representative schemes:
Project Benefits
2. The proposed project would be justified on the basis ofdirect benefits to about 5.8 million persons, rising to about 9.3 million at the end ofthe project period (rate of growth of population is assumed at 2 % per annum). The typical benefits from the project envisaged are time savings in collecting water, saving in operations and maintenance (O&M) and increased availability ofpotable water. In addition to the above benefits, the project is expected to provide health benefits due to reduction in water-borne diseases; capacity building and institutional strengthening ofthe Water Service Boards and Service Providers; improvements in cost recovery, billing and collection; and reduction in non-revenue water. However, many ofthese benefits are difficult to measure at present.
3. The following benefits have been quantified: Value oftime saved in water collection; Value ofincremental water produced and sold; Savings in (existing) O&M recurring costs.
(i) Value of Time Saved in Water Collection. Time saving benefits in water collection will accrue to the project beneficiaries due to improvements in the hours ofsupply and have been valued at the opportunity cost oflabor, based on the number ofdays ofgainful employment in urban and rural areas. On an average, in urban areas 0.7 hrs /Householdday are currently spent on water collection and the expected time savings is 0.5 hrs /Householdday after the project. In rural areas 1.1 hrs/Householdday are currently spent on water collection and the expected time savings is 0.8 hrs/ Householdday after the project. The value oftime saved is estimated using the opportunity cost oflabor, or, the income foregone in other income generating activities. The daily wage rate ofunskilled laborer ($2 in urban areas and $1 in rural areas) has been used as a conservative estimate ofthe opportunity cost oftime. Further it is assumed that gainfbl work is available for 150 days in a year and a household would spend about 52% of the time saved on economic activities. In addition, a standard conversion factor of0.9 is applied to arrive at an economic value oftime savings in border prices.
105 (ii) Value of Incremental (additional) water consumed. Reduced time in collecting water and improved availability will increase the consumption ofwater. The project envisages an average supply of55 lpcd in the rural areas and 70 lpcd in the urban areas. The incremental water consumption is estimated as the difference between the designed supply (55 lpcd in rural and 70 lpcd in urban area) and the present water consumption (36 lpcd in rural and 41 lpcd in urban areas) after the schemes are operational. Water will be available to the project beneficiaries due to improvements in the existing service level. In the absence ofa detailed demand curve, the average demand price (approximated by the average ofthe current and future cost ofwater) has been used to value the incremental water.
(iii) Value of O&IM cost saved. In the absence ofthis project, additional O&M cost will be required to maintain the existing water supply schemes. Based on the data collected from the various Water Service Boards, the recurring cost saved has been assumed as 8% ofthe capital cost.
Project Costs
4. All costs, estimated for the project are expressed in constant 2007 prices (Table 2). The average capital cost per household (designed) is $13 1 for rural areas and $186 for urban areas. The average institutional and software cost per household (designed) is $30 for rural areas and $ 47 for urban areas. The above costs are extrapolated for the entire project, based on following phasing ofschemes: 6% schemes expected in the first year, 22% in the second year, 27% in the third year, 27% in fourth year, and 19% in the fifth year. The institutional and software cost are extrapolated based on projections for five years as follows: 12% in first year, 23% in second year, 28% in third year, 24% in fourth year and 13% in fifth year. The overall benefit-cost analysis is based on the phasing and mix ofschemes as given above. A wide variation in cost is expected across the urban and rural areas depending on the extent ofrehabilitation and extension work ofthe existing water supply system and the number ofhouseholds which actually connect to the system.
Affordability Analysis
5. Various recent studies including ‘Water for the Urban Poor, World Bank 2002’ examine relative access to water supply by the poor and non-poor households in urban Kenya, per capita water use levels and the unit prices that they pay for water. The studies find that, although, about half ofthe households have access to private piped water connections, only 5% ofthose connected are poor. The poor households are mostly dependent on alternate water sources and end up spending more than 40 minutes in collecting water (compared to about 18 minutes by non-poor households), and pay high unit prices for the water they purchase. On an average, urban households are spending Ksh260/cu.m (US$3.5/cu.m), with the poor spending as much as Ksh 4 per 20 liter jerry can or US$2.7/cu.m from kiosk operators, compared to the average tariff ofUS$0.4/cu.m charged by the Nairobi water utility. Further, the kiosk operators enjoy the subsidies intended for the poor, as they receive water from utilities at a bulk tariff ofUS$ 0.1 5/cu.m. Under the proposed project, the illegal connections will be formalized and community based organizations will be running the water kiosks. The poor are likely to be charged about 2 Ksh per 20 liter jeny can, thus providing substantial savings for the poor
106 households. Taking into consideration the current costs incurred by the urban and rural households, the projected tariffs are clearly within affordable limits, and in fact provide substantial savings for all households, particularly the urban poor. Based on recent data, Table A9.1 summarizes the pre-project and post-project affordability scenario for the poor and non- poor urban households and the rural households ...
Average Demand Existing Average Amount Post-project for Water (LPCD) Price (US$/cu m) Households expected Average currently spend on Price (US$/cu.m) water (US$/cum) Urban Non-Poor 70 0.4 3.5 0.60 Urban Poor 40 0.15 (bulk water 2.7 0.15 (bulk water supply for informal supply for informal settlements) settlements) Rural Households I 55 I 0.4 (flatrate of I 2.6 0.60 I US$2.8 permonth) 1
Benefit Cost Analysis and ERR
6. Benefits and costs are expressed in border prices (using standard conversion factor, SCF of0.9 for all domestic expenditures and benefits) and have been forecast for a 25 year period. Table A9.2 provides the existing time spent in collecting water and estimated savings and Table A9.3 summarizes the project costs. The economic rate ofreturn (Table A9.4) is estimated to be 20 % for the entire project (all costs and benefits); 21% for rural areas and 19% for urban areas (with corresponding benefits from time saving in collecting water, value ofincremental water, and O&M cost saved). The ERRSand BC ratios have been estimated for urban and rural areas separately,
Rural Urban Time Spent 1.1 0.7 Time Saved 0.8 0.5
Rural Urban Combine Capital Cost Per Household (Designed) 131 186 169 Institutional Cost per Household (Designed) 30 47 41 O&M Cost Per Household per Year (Designed) 13 11 12
r Rural Urban Combined ERR 21% 19% 20% Benefit Cost (BC) Ratio 1.4 1.4 1.4 NPV of net benefits $28.7 m S68.3m $101m
107 Sensitivity Analysis:
7. The following sensitivity tests have been carried out to assess the economic viability of the project: increase in cost by 30%, or, decrease in benefits by 30%; combined increase in cost and decrease in benefits by 20%; reduction in time saving by 30%; gainful days of employment reduced to 100 days per year; delay in benefits by 3 years.
8. The sensitivity tests, based on assessed risks, indicate the project is able to absorb substantial negative impacts, yet generate positive ERRS(Table 5).
Combined Increase in the Total Costs and Decrease in Total Benefits Increase in the Costs and Decrease in Benefits by 10% 15% 15% 16% Increase in the Costs and Decrease in Benefits by 20% 12% 11% 13%
Reduction in Time Saving 10% Reduction in Time Saving 18% 18% 20% 20% Reduction in Time Saving 17% 16% 18% 30% Reduction in Time Saving 15% 15% 17%
Changes in Opportunity Cost No. of Days of gainful employment considered 200 days 26% 25% 27% No. ofDays of gainful employment considered 100 days 14% 13% 16%
Delay in Benefits Benefits are delayed by 1 year 16% 16% 17% Benefits are delayed by 2 years 14% 14% 15% Benefits are delayed by 3 years 12% 12% 13% CRITERIA Combine Urban Rural Base Case Value 20% 19% 21% Increase in Costs
108 Financial Analysis
9. Operational Viability. The financial forecasts for the Athi Water Services Board (AWSB), Coast Water Services Board (CWSB) and Lake Victoria Water Services Board (LVNWSB) were developed, assessed and analyzed. The analysis focused on the financial viability ofthe three water services boards (WSBs), on their abilities to remain operationally viable, to service debts and contribute to the project-related costs. The implications ofthese in terms ofthe required conditions (amounts ofborrowings, sustainable borrowing interest rates and terms, etc.) were taken into account in the financial structuring ofthe project. Given that the provisions ofservices and collections ofrevenue occur at the water services providers (WSPs), the revenue source ofeach WSB is dependent on the operations and performance oftheir WSPs. As such, the financial models ofthe WSBs were built up from the operations at the main operational / WSP areas ofeach WSB. The operational viability within each ofthese main operational / WSP areas were also assessed using the financial models.
10. Investment Analysis. Investment analyses were carried out for each WSB comparing ‘with’ and ‘without’ project scenarios to arrive at the estimates ofthe WaSSIP project’s financial internal rates ofreturn (FIRRs) for each AWSB, CWSB and LVNWSB. Under the sector institutional framework, each WSB is an autonomous institution responsible for the provision of service delivery and asset / infrastructure development (and therefore its own infrastructure financing) within their respective areas ofjurisdiction. From the perspective ofproject financing, project investment in each WSB should be seen as separate sub-projects and their financial rates ofreturn calculated separately.
11. Layout of Section. This section is divided into four parts. Part I1discusses the financial forecasts ofAWSB, CWSB and LVNWSB, including the critical factors affecting sustainability. Part I11 discusses the investment and sensitivity analysis for project financial returns. Part IV summarizes the output ofthe financial projections and base case financial projection assumptions. The financial models and calculations will be archived in project files.
12. Data Inaccuracies. The uncertainty ofthe accuracy ofsome data used is a risk. At the start ofthe implementation ofthe sector reform in 2003, the sector began to emerge from a historical background offragmented service delivery institutions. Few records pertaining to the operational and financial viability ofoperations were kept. In general, only operations operate by commercialized and semi-commercialized entities such as the parastastal National Water Conservation and Pipeline Corporation (NWCPC) systematically kept commercial-type records and these were generally unreliable33. All three water services board are fairly new institution^^^ and do not have adequately long historical operational and financial records. Similar situations exist at the Water Service Providers (WSPs) level where (i)those that have been appointed by the WSBs have very few years ofoperational and financial records or have just started operations, and (ii)some operational areas have yet to have WSPs appointed.
33 For example, prior to the start of the ongoing Bank project in Nairobi (the Nairobi Water and Sewerage Institutional Restructuring Project - NWSIRP), there had been no water and sewerage operations related audit at the Water and Sewerage Department ofthe city council for nearly 10 years. 34 AWSB was created in 2003, while LVNWSB and CWSB were created in 2004.
109 13. Data Sources. Nevertheless, estimates ofmain operational and financial data have been derived from available audited and unaudited financial and operational data ofAWSB, CWSB and LVNWSB and operational WSPs. In the case ofAWSB and LVNWSB data risks is mitigated. At AWSB, operational as well as project data exist from the ongoing Bank supported NWSIRP (FY04) and the largest (by far) operational area under the Nairobi City Water and Sewerage Company have been under WSP operation for a number ofyears. In the case LVNWSB similar data exist from the ongoing KfW supported Water Sector Development Program (since 2004) and the largest operational areas are under WSP operations. In CWSB’s area ofjurisdiction however, the largest WSP areas (Mombasa Water and Sewerage Company) has only in effect started its operations. Given the transitional state ofthe sector reform, it is expected that the operational and financial data would continually be revised as more robust data become available and as new WSPs are appointed by the WSBs. This exercise will be undertaken during project implementation and supervision.
11. Financial Forecasts
14. Methodology and assumptions. Detailed financial projections over at least a 10-year horizon were prepared by AWSB, CWSB and LVNWSB reflecting the likely impact ofthe project on the financial viability ofthe respective WSBs. The financial projections took into account all the current and projected investments identified to be undertaken by each WSB. Key assumptions used in the projections are summarized in Section IV.
15. Financial forecasts. The financial projections for AWSB, CWSB and LVNWSB were analyzed and determined to show sustainable operations. The results ofprojections indicate that AWSB, CWSB and LVNWSB will be able to cover all their operating and maintenance costs over the period ofthe project and these statuses can be expected to continue post-project. At the same time, based on the assumed terms and conditions ofinfrastructural lending to each WSB, they are likely to be able to service the debt. The assessment ofthe operations at the major operational / WSP areas also suggests that these operational areas / WSPs would be able to cover their operational and maintenance (O&M) costs.
16. Athi Water Services Board (AWSB) and project associated WSPs. AWSB’s projected revenue from payments from WSPs and GOK grants is adequate to fund its operations and service debt. Cashflow from operations is expected to increase over time and AWSB is projected to be able to build up sufficient capacity to service its principal repayment obligations both for the ongoing AFD loan and the WaSSP related loans. The projections also show WSPs in project supported areas will also remain able to cover their operational and maintenance costs. Key factors affecting the financial sustainability ofAWSB are mainly related to NWSC operations and needs carefbl monitoring during project implementation:
Reliance on Nairobi City Water and Sewerage Company (NWSC). Given the very large size ofthe Nairobi operations compared to other WSPs in the area ofAWSB, revenue from NWSC is expected to contribute about 80% ofthe total projected revenue (including GOK revenue grants) ofAWSB between 2008 and 2012. When GOK revenue grants are excluded, this figure increases to about over 90%. Clearly, the improvement of AWSB’s sustainability will depend almost entirely on the operations in Nairobi. On the positive side, the performance ofNWSC has shown a clear improving trend during the
110 last three years ofthe implementation ofthe Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) and current projections show a robust performance in going forward;
Payment by NWSC. AWSB must receive full payment ofits dues from NWSC as stipulated in the Service Provision Agreement - currently set at 20% oftotal NWSC collections. Payment ofthese dues has been smooth throughout the period ofthe NWSIRP;
Billing and Collection Eficiencies. NWSC is assumed to be able to bill 100% ofits customers. This is a reasonable assumption especially given the improvement in billing and customer management operations in the last three years. However, the projections assume an increase in collections efficiency from 65% to 92% during the project. The projections show that if collections rate remains flat throughout, the corresponding reduction in AWSB’s revenue would not be sufficient for it to meet its capital debt servicing obligations (although it could still meet its day-to-day operational expenses). The projections indicate that collection could improve at a slower rate but should on a steady improving trend to about 95% by about 2016 enable AWSB to service its debt obligations.
Unaccountedfor Water (Up). NWSC is assumed to be able reduce UfW from about 45% to about 33% by the end ofthe project in 2012. IfUM7 remains flat throughout, the corresponding reduction in AWSB’s revenue would not be sufficient for it to meet its capital debt servicing obligations (although it could still meet its day-to-day operational expenses). The projections indicate that UfW reduction could be slower than the target but should be on a steady improving trend and eventually reach the project target of25% by about 2016 to enable AWSB to service its debt obligations.
17. The performances ofNWSC in terms ofimprovement in revenue, reduction / control of costs and improvement ofoperational efficiencies should be key indicators to be monitored during project implementation. The financial viability ofAWSB and WSPs in all WaSSIP supported areas will form part ofthe project’s financial covenants.
18. Lake Victoria North Water Services Board (LVNWSB). LVNWSB’s projected revenue from payments from WSPs and GOK grants is adequate to hnd its operations and service debt. Cashflow from operations however is expected to be weak in the beginning gradually building up over the timeframe ofthe project to build up sufficient capacity to service its principal repayment obligations both for the ongoing KfW loan and the WaSSIP related loans. The WaSSIP project is envisaged to invest in the Phase 3 towns ofthe overall KfW supported Water Sector Development Program. These are new and would take some time to build up. Operations in these towns are initially expected to require external operational cost support. LVNWSB is projected to be able to cover these costs from its general revenue (but a small provision has been incorporated into the project). GOK grant may also be expected to be available to provide for the initial operations ofnew WSPs / operational areas on a limited time and decreasing basis. Key factors affecting the financial sustainability ofLVNWSB which needs carefid monitoring during project implementation are:
111 Reliance on WSPs not supported by the WaSSIPproject. The 6 small towns and a cluster ofrural operations to be supported by WaSSIP are small and therefore contribute only a small portion to LVNWSB’s overall revenue. While the WaSSIP project naturally needs to monitor the outputs and outcomes in the Phase 3 towns, there is a need to monitor the overall operations ofthe three largest WSPs under LVNWSB i.e., Nzowasco, Eldowas and Western Water Company. During 2008 - 2012, these 3 companies are expected to provide between 70 and 80% ofLVNWSB’s revenue. Out ofthe 70-80%, KfW supported Nzowasco will contribute about half.
Payment by WSPs. LVNWSB must receive full payment ofits dues from its WSPs especially Nzowasco, Eldowas and Western Water Company as stipulated in the Service Provision Agreement - currently set at 13%’ 3.5% and 8% oftheir respective collections.
19. The financial viability ofLVNWSB and WSPs in all WaSSIP supported areas will form part ofthe project’s financial covenants. The project will need to cooperate and coordinate closely with LVNWSB and KfW to monitor the performances ofNzowasco, Eldowas and Western Water Company in terms of improvement in revenue, reduction / control ofcosts and improvement ofoperational efficiencies.
20. Coast Water Services Board (CWSB). CWSB’s projected revenue from payments from WSPs is adequate to fund its operations and service debt. Cashflow from operations is expected to increase over time and CWSB is projected to be able to build up sufficient capacity to service its principal repayment obligations both the proposed AFD loan and the WaSSIP related loans. The projections also show WSPs in project supported areas will also remain able to cover their operational and maintenance costs. Key factors affecting the financial sustainability ofCWSB which needs careful monitoring during project implementation are:
Bulk Sales to WSPs. Key WSPs within the CWSB areas source their water supply through the bulk supply line from Mzima Springs to Mombasa. Currently this bulk supply operation is being operated by CWSB which sell bulk water supply to the WSPs for onwards retail sales. This currently forms the largest source ofrevenue for CWSB - about 80% ofits projected 2007 revenue will come from this source. Under the provisions ofthe Water Act (2002), WSBs are obliged not to operate the systems (except in very limited circumstances). CWSB is creating a ‘new bulk supply WSP’ which will be contracted to operate this bulk supply operations. Under this new arrangement, CWSB would relinquish direct sales revenue in exchange for a smaller payment ofa percentage ofcollections ofthis ‘new bulk supply WSP’ and the passing ofbulk supplies operating costs to the ‘new bulk supply WSP’. The net effect ofthis on CWSB is still expected to result in a sustainable CWSB. However, the development ofthe financial situation in CWSB as this change in effected will need to be monitored closely during project implementation.
Reliance on Mombasa Water Company (MWC). Given the large size ofthe Mombasa operations compared to other WSPs in the area of CWSB, revenue from NWSC is expected to contribute about 55 - 65% ofthe total projected revenue ofCWSB between
112 2008 and 2012. Clearly, the improvement ofCWSB’s sustainability will depend to a large extent on the operations in Mombasa. Given that the operations at MWCis fairly new, there is a considerable risk that projected improvement targets may not be met.
0 Payment by WSPs. CWSB must receive full payment ofits dues from its WSPs as stipulated in the Service Provision Agreements - in particular from MWC.
111. Investment Analysis
21. This analysis was carried out using a ‘with and without project’ methodology to estimate the financial internal rates ofreturn for the project. The financial IRR for the project have been estimated at 8% (AWSB), 9% (CWSB) and 7% (LVNWSB). Overall financial IRR for the project is positive and estimated at 8%. It should be noted that the prioritization and choice of project investments have been made considering factors other than the maximization of profitability alone (e.g., investments are also made in less profitable WSP areas).
IV. Key Assumptions for Financial Projection
22. Significant assumptions are summarized in Box A9.1 below. Other assumptions can be found in the financial models in the project files.
Box A9.1: Financial Assumptions AWSB e General. The opening financial figures generally utilize the latest available data. Where operations do not yet exists the figures are estimated - although these operations do not significantly alter the overall picture given the large relative size ofthe existing Nairobi operation. 0 Prices. Operational expenses are increased by an assumed local inflation rate of5% p.a., except for staff cost increase which is set at 7.5%. Average tariff varies between WSPs but are generally in the region ofKsh20 - 26 per m3, and increased by 3% pea.from 2008 in NWSC and 201 1 in other areas. e Onlending. The interest rate for the AFD loan is set at 2.9% on funds drawn down. Principal repayment commences in 2012 onwards for a total of 13 years. The interest rate for the IDA loan is set at 1.5% on funds drawn down. Principal repayment commences in 2013 onwards for a total of 15 years. e Revenuefiom WSPs. Revenue from the largest WSP, NWSC is set at 20% ofcollections. e FIRR Calculations. Boththe WaSSIP and the AFD’s Nairobi Emergency Physical Rehabilitation Project are included in the analysis as the projects’ benefit streams are intermingled. CWSB 0 General. The opening financial figures generally utilize the latest available data. Where operations do not yet exists the figures are estimated - although these operations do not significantly alter the overall picture given the large relative size ofthe existing Mombasa operations. Prices. Operational expenses are increased between 2 - 5 % p.a., except for office space costs which is estimated to increase significantly by 15% pea.. Average tariff varies between WSPs but is at Ksh41 per m3 for domestic and Ksh 83 per m3 for non-domestic in the largest WSP - Mombasa. This remains constant throughout. Onlending. The interest rate for the AFD loan is set at 2.9% on funds drawn down. Principal repayment commences in 2012 onwards for a total of 13 years. The interest rate for the IDA loan is set at 1.5% on funds drawn down. Principal repayment commences in 2013 onwards for a total of 15 years. Revenuefiom WSPs. Revenue from the largest WSP, MWC is set at 10% ofcollections. FIRR Calculations. Both the WaSSIP and the AFD’s proposed Mombasa project are included in the analysis as the projects’ benefit streams are intermingled.
113 General. The opening financial figures generally utilize the latest available data. Where operations do not yet exists the figures are estimated - although these operations do not significantly alter the overall picture given the large relative size ofthe existing Nzowasco, Eldowas and Western Water Company operations. Prices. Operational expenses are increased by an assumed local inflation rate of 5% p.a., except for staff cost increase which is set at 7.5%. Average tariff varies between WSPs but are generally in the region of Ksh20 - 40 per m3 for domestic and Ksh 50 - 70 per m3 for non-domestic in the three largest WSPs. These increase progressively to about Ksh25 - 45 per m3 and Ksh 60 - 80 per m3 respectively by the end ofthe project. Onlending. The interest rate for the KfW loan is set at 2.0% on funds drawn down. Principal repayment commences in 2012 onwards for a total of 13 years. The interest rate for the IDA loan is set at 1.5% on funds drawn down. Principal repayment commences in 2013 onwards for a total of 15 years. Revenuefiom WSPs. Revenue from Nzowasco, Eldowas and Western Water Company set at 13%, 3.5% and 8% of collections. FZRR Calculations. Only WaSSIP’s investments in Phase I11 WSDP towns are included in the analysis.
114 Annex 10: Safeguard Policy Issues KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
1. WaSSIP triggers four safeguard policies: Environmental Assessment (OP/BP 4. Ol), Involuntary Resettlement (OP/BP 4.12), Indigenous Peoples (OP/BP 4.1 0) and International Waters (OP/BP 7.50). In order to address these safeguard policy issues and to ensure that implementation ofproject activities will be carried out in an environmentally and socially sustainable manner, the GOK prepared an Environment and Social Management Framework (ESMF), a Resettlement Policy Framework (RPF) and an Indigenous People Planning Framework (IPPF). The completed ESMF, RPF and IPPF have been disclosed by the GOK in- country and the World Bank at the Bank’s Information Centre in Washington D.C. In order to satisfy requirements for International Waterways (OP/BP 7.50), a notification ofthe commencement ofthe project has been sent to the parties ofthe Nile Basin Agreement. The following sections ofthis Annex present the rationale for the ESMF, RPF and IPPF, and include their executive summaries.
Environment and Social Management Framework (ESMF)
2. Background and Rationale. The ESMF prepared for this project will allow the three Water Services Boards (WSBs) Le., AWSB, CWSB and LVNWSB to identify, assess and mitigate potential negative environmental and social impacts ofsub-projects, and to ensure that proper mitigation and possibly the preparation ofappropriately costed Environmental Impact Assessments (EIA) and mitigation and management plans as well as Resettlement Action Plans (RAPS)where necessary. The ESMF presents guidelines and procedures consistent with the Environmental Management and Coordination Act ofKenya and the World Bank’s safeguard policy on Environmental Assessment (OP/BP 4.01).
3. Mitigation of potentially negative impacts. The ESMF outlines an environmental and social screening process for sub-projects which will enable the WSBs, their water service providers (WSPs), local communities and other key stakeholders to simultaneously identify potential environmental and social impacts ofsub-projects and to address them through the incorporation ofthe relevant mitigation and management measures. To effectively ensure the minimization or elimination ofnegative impacts, the ESMF encourages the inclusion of mitigation actions at the design ofsub-projects prior to implementation. The screening process has been developed as the locations and types ofsub-projects are not yet fully defined and therefore potential impacts cannot be precisely identified. WaSSIP directly addresses environmental and social issues and poverty reduction, and are likely to deliver significant positive environmental and social benefits. Specifically, the project will address: (a) water quality and delivery issues, (b) collaboration with relevant bodies to manage and mitigate watersheds and catchments to ensure sustainable supply and avoid degradation ofthe sources, (c) institutional and human resources capacities to ensure quality, sustainability and reliability, and (d) the improvement and maintenance ofsanitation infrastructure and pre-treatment ofwaste water prior to releases to water bodies. While the proposed interventions are anticipated to have significant positive impacts on the environment and on the livelihood ofthe affected
115 communities, some ofthe individual sub-projects to be funded may involve environmental and social risk particularly in the LVNWSB but also in AWSB and CWSB.
4. The ESMF therefore lays out measures to screen and mitigate impacts that may arise during project implementation. To enable AWSB, CWSB and LVNWSB to achieve the set goals as outlined in the ESMF, environment units will be established in all three WSBs and funds set aside to build the institutional and human resources capacities, and 1-2 years technical assistance (TA) will be funded by the project to provide the units with the expertise to set the rules for sound environmental and social management. These units will then be charged with the responsibilities to provide:
i) Guidance on preparation ofcomprehensive checklists ofpotential environmental and social impacts and their sources; ii) Systematic procedures for participatory screening ofsub-project sites and activities and the environmental and social considerations; iii)A step-by-step approach for forecasting the main potential environmental and social impacts ofthe planned project activities; iv) A typical environmental management planning process for addressing negative externalities in the course ofproject implementation; v) A monitoring system for the implementation ofmitigation measures; and vi) An outline ofrecommended capacity building measures for environmental planning and monitoring ofproject activities.
5. Executive Summary. The ESMF is prepared for the Water and Sanitation Improvement project which the Government intends to implement. This ESMF has been prepared by the Recipient consultant and reviewed and approved by the World Bank and the Government and disclosed in-country and at the World Bank’s Infoshop. The purpose ofthis ESMF is to provide a strategic guide for the integration of environmental and social considerations in the planning and implementation ofthe project activities.
6. The development objectives ofthe project are to: (a) increase access to reliable, affordable and sustainable water supply and sanitation services; and (b) to improve the water and wastewater services in the areas served by AWSB, LVNWSB and CWSB. This will be achieved by (i)rehabilitating selected existing water production, transmission, storage and distribution facilities and wastewater collection, treatment and disposal facilities, (ii)expanding piped water supply services to under-served areas (including urban slums) through a balanced program including the involvement of communities in decision making and extension ofprimary and secondary distribution pipes where required, and (iii)refining and strengthening the institutional structure, emphasizing on increasing accountability and transparency ofthe institutional and governance and management framework. Achievements under the project will be measured by indicators tracking changes in organizations and their performance, in the health ofthe natural resource base, and in welfare ofparticipating communities.
7. The Project embodies effective institutionalized linkages between key sector actors, including central government, local government, Regional Water Boards, External Support Agencies, the private sector, and the communities themselves. The service providers are key
116 partners with the Boards and communities in planning, design, construction and supply ofwater to the users.
8. According to the National Environmental Management and Coordination Act of 1999, the World Bank's safeguard policy OPBP 4.01 and Kenya's EIA Guidelines, the Water and Sanitation Improvement Project falls under the list ofprojects for which environmental impact assessment is mandatory, prior to implementation. The basis is that the proposed sub-projects constitute several components ofactivities, which would generate changes and impacts to both the physical and social environment.
9. The proposed project has been categorized as Byaccording to the Environmental Assessment Operational Policy; and therefore, the appropriate environmental work has been carried out for Category B projects while the scope ofEIA for Category B may vary from one sub-project to another. Since the locations ofthe infrastructure investments and their potential negative localized impacts could not be determined prior to appraisal, the ESMF has been prepared to ensure appropriate mitigation ofpotential negative environmental and social impacts. Although the program activities will vary in size, location, scope and the approach in implementation, most ofthese activities will involve civil engineering and construction works which might have generic environmental impacts. As sub-proj ect proposals are finalized, the complete proposal shall include the environmental category ofthe sub-project. For category B and A sub-projects requiring an EIA, the proposal shall include the EIA report and proof ofits approval by NEMA and the World Bank and any interested Development Partner or Financing Agency, For less contentious category B projects that do not require the preparation ofa separate EIA, the completed environmental and social checklist will be attached to the sub-project proposal.
10. The ESMF has been prepared as a guide for the initial screening ofthe proposed project sites, and for negative environmental and social impacts, which would require attention prior to project implementation. The ESMF outlines a number ofstrategies in undertaking the exercise. These include:
(a) an outline ofa comprehensive checklist for the potential environmental and social impacts and their sources; (b) systematic procedures for participatory screening processes for project sites and project activities for environmental and social considerations; (c) a step-by-step procedure for forecasting the main potential environmental and social impacts ofthe planned project activities; (d) a typical EMP for addressing negative externalities in the course ofproject implementation and operations within the environment; (e) a monitoring system for implementation ofmitigation measures; and (0 an outline ofrecommended capacity-building measures for environmental planning management and monitoring ofthe project activities.
1 1. The framework recommends that in order for the implementation ofthe ESMF to be successfbl, there is need to ensure that other sub projects being implemented in the same areas as the Water and Sanitation Project have their own comprehensive environmental and social management plans. It also recommends that the National Environment Management Council
117 and sector ministries and agencies should ensure that human activities that lead to environmental and social problems are properly managed and monitored.
12. The framework also suggests that for successful implementation ofthis ESMF, involvement and participation oflocal communities is paramount. Specifically the framework recommends:
(a) using the screening process ofboth the ESMF and RPF prior to any project activity ofthe two projects; (b) environmental and social awareness and education for the key stakeholders and affected communities; (c) training the local community structures to implement the ESMF and the screening process; (d) regularly updating this ESMF to respond to changing local conditions; (e) building capacities for developing appropriate information management systems to support the environmental and social management process; (f) providing the necessary resources and equipment for the Athi, Coast and Lake Victoria North Water Services Boards respectively and other players to be able to produce the necessary documentation and forms for the implementation ofthe ESMF; and (g) empowering the newly created Environment Units in the Three Boards and their environmental officers to adequately administer the ESMF.
13. As a reference material, the framework will be usefbl to several stakeholders who will be involved in planning, implementation and monitoring ofthe proposed project. Some ofthe key users ofthis framework are:
(a) finding agencieddonors for the proposed ; (b) District Environmental Management Officers and Committees; (c) Indigenous Peoples Organizations; (d) participating sectors in the implementation ofthe project; (e) politicians and local traditional leaders; (f) senior central government officials responsible for policymaking and project planning; (g) central government officials responsible for environmental planning and management; (h) NGOs and the private sector involved in the selected districts; (i)plamiers and engineers for preparation ofplans and designs ofthe project activities; and (‘j) engineers and contractors to be involved in implementation ofthe project activities.
14. Annual reviews should be undertaken after implementation ofthe recommended action ESMF report has been prepared, at the closing ofeach year ofthe Project. It is expected that each review would require three to four weeks offield work (interviews, examination of subprojects), and that the review report would be completed within two weeks ofcompleting the fieldwork. The reviews process will be funded by the Three Boards.
Resettlement Policy Framework (RPF)
15. Background and Rationale: In accordance with World Bank’s social safeguard policy on Involuntary Resettlement (OP/BP 4.12)’ which has been triggered by WaSSIP, the GOK is
118 required to prepare a social safeguards instrument. Since the sub-projects are not determined in advance, the appropriate instrument is the RPF, which will be employed in conjunction with the ESMF to ensure that social impacts due to sub-proj ect activities are appropriately addressed. The RPF document outlines the principles and procedures to be followed in the event that a sub- project leads to land acquisition, impact on assets, and/or the loss oflivelihoods.
16. Should the environmental and social screening results indicate that any ofthe planned sub-projects will lead to land acquisition, impact on assets or loss in economic activity or livelihood, the WSBs as the implementing agencies will prepare a Resettlement Action Plan, applying the principles and procedures for compensation as outlined in the RPF.
17. The RPF establishes the Resettlement and Compensation principles, organizational arrangements and design criteria to be applied to meet the needs ofthe people and communities who may be affected by the project activities. As Kenya does not have a national resettlement policy, the RPF and eventual RAPSare prepared on the basis ofthe World Bank policy on Involuntary Resettlement (OPBP 4.12). However, it is noted that while no policy directly equivalent to the Bank’s social safeguard policies or expressly devoted to safeguarding social issues exist, the rights ofcitizens and residents of Kenya are nevertheless laid out in the country’s constitution and further elaborated in various laws and statutes all ofwhich seek to ensure fair play in the administration ofpublic affairs and conflict whether over land or other natural resources. When specific planning information becomes available and the land areas are identified, sub-project resettlement/compensation plans will be subsequently prepared consistent with the RPF and will be submitted to the Bank for approval before any land acquisition, resettlement or any other negative impact on livelihood occurs.
18. Consistent with the World Bank Operational Policy on Involuntary Resettlement (OPBP 4.12), the RPF prepared for WaSSIP covers: (a) the principles and objectives governing resettlement and compensation; (b) a description ofthe process for preparing and approving Resettlement and Compensation Action Plans; (c) land acquisition and likely categories of impact; (d) eligibility criteria for defining various categories ofProject Affected Persons (PAPS); (e) a legal framework reviewing the fit between the laws ofKenya and regulations and the policy requirements ofthe World Bank and measures to bridge any gaps between them; (0 the methods ofvaluing affected assets; (g) the organizational procedures for the delivery ofentitlements, including the responsibilities ofthe GOK and any private developer; (h) a description ofthe implementation process, linking resettlement and compensation implementation to civil works; (i)a description ofgrievance redress mechanisms; fi) a description ofthe arrangements for funding resettlement and compensation, including the preparation and review ofcost estimates, the flow offinds, and contingency arrangements; (k) a description ofthe mechanisms for consultation with and participation ofdisplaced persons in planning, implementation, and monitoring; and (1) arrangements for monitoring by the implementation agency and if required by independent monitors.
19. It is important to note that the number ofProject Affected Persons (PAPs) that will require resettlement and/or compensation is not yet known. For this reason, the RPF has given rough estimates ofresettlement action planning and implementation cost should it occur in any ofWaSSIP’s sub-projects. For this purpose, an indicative budget ofabout $4.8 million has been
119 provisioned in the project, including a provision to ensure that resettlement is integrated into the project implementation.
20. Executive Summary: The Government with assistance from World Bank and other development partners is implementing the Project. The project will focus on prioritized water supply and sewerage institutional restructuring and institutional capacity building and service delivery.
21. The development objectives ofthe project are to: (a) increase access to reliable, affordable and sustainable water supply and sanitation services; and (b) to improve the water and wastewater services in the areas served by AWSB, LVNWSB and CWSB. This will be achieved by (i)rehabilitating selected existing water production, transmission, storage and distribution facilities and wastewater collection, treatment and disposal facilities, (ii)expanding piped water supply services to under-served areas (including urban slums) through a balanced program including the involvement ofcommunities in decision making and extension ofprimary and secondary distribution pipes where required, and (iii)refining and strengthening the institutional structure, emphasizing on increasing accountability and transparency ofthe institutional and governance and management framework. Achievements under the project will be measured by indicators tracking changes in organizations and their performance, in the health ofthe natural resource base, and in welfare ofparticipating communities.
22. In cases where new land has to be acquired for, there will be need for the preparation of procedures and principles for land acquisition, resettlement and compensation. This entails providing sufficient investment resources to meet the needs ofthe Project Affected Persons (PAPs) who may be displaced from their habitat and resources. It also requires adequate collaborative consultation and agreement with the PAPs to ensure that they maintain or improve their livelihoods and standards ofliving in the new environment. This RPF which has been prepared by the Recipient consultant and reviewed by the World Bank and Recipient has been approved, by both parties and will be disclosed in-country and at the World Bank’s Infoshop. This is to ensure compliance with Recipient and Bank policy and most importantly to ensure effective preparation and implementation ofthe land acquisition, resettlement and compensation processes should the need to do so arise.
23. The legal instruments have been noted to contain relevant legislation that defines the different classificationshategories ofland, and specific issues that relate to land acquisition and land transfer including the management ofthe land acquisition and transfer processes itself. The legal basis has been found very useful in the preparation ofthis RPF.
24. The RPF has been prepared in anticipation that the project activities in the different areas will require additional land. The RPF therefore, provides safeguards against adverse impacts of development activities on communities. It provides procedures and means for adequately compensating for the losses the PAPs may incur, in the case that resettlement cannot be avoided.
25. This RPF includes guidelines for compensation for land contributed voluntarily for the Projects without seeking compensation; as well as land acquired involuntarily. The guiding principle for land acquisition shall be that where land is required for implementation ofthe sub-
120 project activities, the recommended safeguards shall be observed to reduce the suffering ofthe affected community members.
26. The RPF is intended to assist all funded projects ofcategory (A-C) and the overall responsibility for implementation ofthis Framework shall reside with the different Boards and their partners. The project will ensure that the Framework is publicly disseminated and that the program implementers have the requisite skills and knowledge and, where necessary, they have received appropriate training to implement the RPF as indicated in the ESMF. The Three Water Boards shall take responsibility for implementation ofthe RPF at respective areas with assistance from other stakeholders. Implementation ofthe RPF shall require a number ofsteps including:
(a) a full understanding ofthe project components, particularly those requiring land acquisition; (b) determination ofland ownership; (c) screening ofthe project sites and activities; (d) property and asset valuation; (e) preparation and approval ofresettlement plans; (0 implementation and monitoring ofthe resettlement plans; (g) effective redress ofcomplaints and grievances; and (h) public consultation and participation.
27. These steps will ensure that sub-projects are satisfactorily and efficiently implemented to effectively address any adverse social, economic and environmental impacts so that PAPSare fairly treated on land acquisition and resettlement.
Indigenous Peoples Planning Framework
28. Background and Rationale: In accordance with World Bank’s policy on Indigenous Peoples (OPBP 4. lo), which has been triggered by WaSSIP, the GOK is required to prepare an indigenous peoples’ safeguards instrument. It was determined during project preparation that the Sengwer indigenous peoples are present in some areas in the jurisdiction ofLVNWSB. Past experience with other donors active in the area, specifically KfW, has shown the attachment and feelings ofownership ofthe water resources by Sengwer communities. Thus Component 3’ of WaSSIP is subject to World Bank’s policy on Indigenous Peoples (OPBP 4.10). WaSSIP involves multiple subprojects within the annual investment programs ofthe WSBs. Currently, two identified sub-projects in Component 3 may impact the water supply and catchments ofthe Sengwer communities. The impacts ofother sub-projects will need to be assessed. The appropriate instrument is the Indigenous Peoples Planning Framework (IPPF).
29. The preparation ofthe IPPF includes a process ofinterviews, discussions and consultative meetings with affected indigenous communities and civil society organizations and builds upon previous IPPFs prepared for two World Bank projects active in the same area i.e., the Western Kenya Community Driven Development and Flood Mitigation project, and the Natural Resource Management project. The IPPF sets out:
(a) The types ofprograms and subprojects likely to be proposed for financing under the project;
121 (b) The potential positive and adverse effects ofsuch programs or sub-projects on Indigenous Peoples; (c) A plan for carrying out the social assessment for such programs or subprojects; (d) A framework for ensuring free, prior, and informed consultation with the affected Indigenous Peoples’ communities at each stage ofproject preparation and implementation; (e) Institutional arrangements (including capacity building where necessary) for screening project-supported activities, evaluating their effects on Indigenous Peoples, preparing Indigenous Peoples’ Plans (IPPs), and addressing any grievances; (f) Monitoring and reporting arrangements, including mechanisms and benchmarks appropriate to the project; and (g) Disclosure arrangements for IPPs to be prepared under the IPPF.
30. Executive Summary. The Kenya Water Supply and Sanitation Improvement Project (WaSSIP) was set to achieve one ofthe Millennium Development Goals (MDGs) - access to safe water and improved sanitation. It has two specific objectives which are (1) Increase access to reliable, affordable and sustainable water supply and sanitation services; and (2) Improve the water and waste-water services in the areas served by appointed the Athi Water Services Board (AWSB), Coast Water Services Board (CWSB) and Lake Victoria North Water Services Board (LVNWSB).
3 1. The project has three key components (i)Support to Athi Water Services Board (AWSB) (ii)Support to Coast Water Services Board (CWSB) (iii)Support to Lake Victoria North Water Services Board (LVNWSB). Each WSB is responsible for implementing the WaSSIP project component falling within its area.
32. The Sengwer indigenous peoples (a hunter-gatherer community who live in three administrative districts ofMarakwet, Pokot and Trans Nzoia) live in some areas in the jurisdiction ofLVNWSB. The project triggered the World Bank’s safeguards policy 0.P 4.10 on Indigenous Peoples. Only Component 3 ofWaSSIP is subject to this policy. WaSSIP involves multiple subprojects within the annual investment programs ofthe WSBs. As such an Indigenous Peoples Planning Framework (IPPF) is to be developed to provide for the screening and review ofthese subprojects in a manner consistent with OP 4.10. LVNWSB’s subprojects to be financed under WaSSIP will be screened and if IP is a factor in the subproject, a subproject specific Indigenous Peoples Plans (IPP) will be prepared. These subprojects will not be implemented until the associated IPP has been developed in agreement with the affected Indigenous People’s communities, cleared and disclosed.
33. There are two other projects in Kenya financed by the World Bank in the area which also triggered OP 4.10 and which have IPPF approved. These are (i)the Western Kenya Community Driven Development and Flood Mitigation Project (WKCDD) and (ii)the Natural Resource Management Project (NRM). The IPPF for WaSSIP should be consistent with the existing IPPFs. The WaSSrP IPPF should therefore build upon and be read in conjunction with the IPPFs for WKCDD and NRM.
34. In the course ofdeveloping the WaSSIP IPPF, the relevant documents were reviewed and discussions held with project implementers in Nairobi and Kakamega and visits made to five
122 Sengwer areas namely Kapsowar, Kapcherop, Kapenguria, Kapolet, and Kesogon. In these places discussions were held with the communities who included men, women and youth who are affected differently by the project.
35. It has been observed that the Sengwer (1) experience high levels ofpoverty levels compared to other rural Kenyan households; (2) have inadequate representation in decision- making bodies; (3) receive less social services; (4) experience discrimination from the legal system, and this constraints their access to natural resources necessary for their livelihoods; (5) experience losing their lands through encroachment by outsiders; (6) lack the capacity/ technical skills and capital to take advantage ofnew business opportunities; and (7) have tended to rely more on non-governmental organizations to defend and promote their interests.
36. In terms ofthe impacts of the proposed WaSSIP on the Sengwer, discussions and observations identified both potential positive and negative impacts. The potential positive project impacts identified include: (1) water will boost local economic development, boost food security and household incomes, reduce poverty and vulnerability; (2) improved health situation by reducing water-borne disease, increasing levels ofhygiene and sanitation; (3) reduced work loads ofwomen and allow them to be engaged in other strategic gender initiatives. The potential negative impacts include: (1) concentration ofpeople and livestock around constructed water points; (2) loss ofwater rights due to increased encroachment of Sengwer territory by outsiders attracted by the water; (3) increase in soil erosion; (4) loss ofbiodiversity; (5) increase of mosquitoes and water borne diseases; (6) the participation ofwomen in decision making processes is relegated to the margins - it is recommended that WaSSIP should enhance the capacity ofwomen through exposure and leadership training.
37. The IPPF WaSSIP will apply several mechanisms to address possible adverse impacts from the project and ensure that indigenous peoples received culturally appropriate benefits, including: (i)support and capacity building will be provided to IP communities on IP issues pertaining to water supply and sanitation, orientate IP communities of sector policy and instruments, preparation and monitoring ofIPPs; (ii)ensuring communication and consultation between the IP communities and service provision institutions through the institution ofa steering committee involving the IP communities, LVNWSB and the provincial administration, (iii)providing the IPSfull opportunities in decision making and management ofWSS service provision in their own areas; (iv) providing for the inclusion ofIPS (through consultation and participation) in the development ofwater services infrastructure; and (v) expanding access of clean and reliable water for IPS.It is recognized that some ofthese measures would require a broad based approach for which LVNWSB may have some limitation in handling. The WaSSIP IPPF proposes a framework for factors that can be addressed within the project’s objectives while providing LVNWSB with opportunity for collaboration and mediation mechanisms that will provide a platform for addressing the wider issues ofinterest to the Sengwer community.
38. The WaSSIP component under LVNWSB is part ofcoordinated effort between two development partners - the World Bank and KfW - who are supporting LVNWSB in parallel through their respective projects. The Bank (WaSSIP) support is envisaged to include (i)a set of towns where technical feasibility works have earlier been carried out under the KfWproject, and (ii)selected locations/rural schemes not covered by KfW. For (i),although WaSSIP will adopt and make use offeasibility and designs previously done under KfW funding, its infrastructural
123 investment would be stand alone and separate from KfW's project. It is noted that KfW had previously reached a bilateral agreement with the Sengwer in some areas which involves provision ofsome infrastructure and facilities. The WaSSIP component does not cover this agreement and it will be necessary for LVNWSB, while implementing the KfW project, to ensure that the issues covered in the agreement are carried out.
39. In order to secure optimal participation ofthe Sengwer Community during implementation ofWaSSIP, a communication framework between the Sengwer, the provincial administration and LVNWSB will be necessary. Sensitization ofthe officials ofthe LVNWSB on indigenous peoples issues in general and the IPPF in particular will be useful in order to facilitate effective communication between the LVNWSB and the Sengwer community. In addition, the communication framework will have to ensure that Sengwer are meaningfully represented in management ofwater supply, particularly in any water service provider appointed to operate in their area. All communications must satisfy the criteria offree, prior and informed consultation in line with the requirements ofthe IPPF.
124 Annex 11: Project Preparation and Supervision KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Planned Actual PCN review 10/04/2006 10/04/2006 Initial PID to PIC 10/10/2006 10/12/2006 Initial ISDS to PIC 10/10/2006 10/12/2006 Appraisal 10/01/2007 10/09/2007 Negotiations 10/29/2007 Board/RVP approval 12118/2007 Planned date of effectiveness 0 1/18/2008 Planned date of mid-term review 12/31/2009 Planned closing date 12/3 1/2012
Key institutions responsible for preparation of the project:
1. Athi Water Services Board Africa Re-Center, Hospital Road P.O. BOX45283-00100 Nairobi, KENYA
2. Coast Water Services Board Kaunda Avenue-Kizingo P.O. BOX90417-80100 Mombasa, KENYA
3. Lake Victoria North Water Services Board P.O. BOX673-50100 Kakamega, KENYA
Bank staff and consultants who worked on the project included:
Name Title Unit Fook Chuan Eng Sr. Financial Analyst (Team Leader) SASDU Francis Ato Brown Lead Sanitary Engineer AFTUl Solomon Alemu Sr. Sanitary Engineer AFTUl Devendra Bajgain Operations Officer AFTU1 Smita Misra Sr. Economist SASDU Serigne Omar Fye Sr. Environmental Specialist AFTS 1 Kristine Schwebach Operations Analyst AFTS 1 Moses Sabuni Wasike Sr. Financial Management Specialist OPCFM Henry Amena Amuguni Financial Management Specialist AFTFM Dahir Elmi Warsame Sr. Procurement Specialist AFTPC Nightingale Rukuba-Ngaiza Sr. Counsel LEGAF Hyacinth D. Brown Sr. Finance Officer LOAG2
125 James Karuiru ET Consultant AFTUl Rildo Santos Language Program Assistant AFTU1 Roderick Babijes ET Temporary AFTU1 Anne Odera Program Assistant AFCE2 Efiem Fitwi Procurement Analyst AFTPC Christine Tessy Oyango Temporary Team Assistant AFCE2 Rosemary Ngesa Otieno Temporary Team Assistant AFCE2
Bank funds expended to date on project preparation: 1. Bank resources: $187,2 12 (as of 10/3 1/07) 2. Trust funds: N/A 3. Total: $187,2 12 (as of 10/3 1/07) - note that the project also benefited from signijkant resource sharing with the supervision of the ongoing Nairobi Water and Sewerage Institutional Restructuring Project (PO4961 8)
Estimated Approval and Supervision costs: 1. Remaining costs to approval: $15,000 2. Estimated annual supervision cost: $150,000
126 Annex 12: Documents in the Project File KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
A. Bank Staff Assessments 0 Project Preparation Back to Office Reports and Aide Memoires
0 Financial Management Assessment 0 Procurement Capacity Assessment 0 Project Information Document (PID) 0 Integrated Safeguards Data Sheet (ISDS) 0 Financial and Economic Analysis Data
B. Project Implementation Documents 0 Environmental and Social Management Framework (ESMF) 0 Resettlement Policy Framework (RPF) 0 Indigenous Peoples Planning Framework (PPF) 0 Communications Strategy 0 Informal Settlements Strategy
C. Other documents/Studies carried out 0 Kenya Inside Informality: Poverty, Jobs, Housing and Services in Nairobi’s Slums (May 31, 2006), World Bank Report No. 36347-KE 0 Towards a Water Secure Kenya - Water Resources Sector Memorandum (April 2004), World Bank Report No. 28398-KE 0 Review of the Water Supply and Sanitation Sector - Republic of Kenya (2000) 0 Water Act (2002) 0 Public Officers Ethics Act (2003) 0 Companies Act (1962) 0 The Water (Plan of Transfer of Water Services) Rules, 2005 [the ‘Transfer Plan’] 0 National Water Services Strategy 2007 -2015 0 Licenses granted by Water Services Regulatory Board to Athi, Coast and Lake Victoria North Water Services Boards
127 Annex 13: Statement of Loans and Credits KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Difference between expected and actual Original Amount in US$ Millions disbursements
Project FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. ID Rev'd PO95050 2007 KE-NRM SIL (FY07) 0.00 68.50 0.00 0.00 0.00 69.41 0.00 0.00 PO87479 2007 KE-Edu Sec Sup Project (FY07) 0.00 80.00 0.00 0.00 0.00 129.82 6.67 0.00 PO85414 2007 KE-Natl STATCAP Dev 0.00 20.50 0.00 0.00 0.00 21.29 0.00 0.00 PO74106 2007 KE-W Kenya CDDlFlood 0.00 86.00 0.00 0.00 0.00 87.21 0.00 0.00 Mitigation (FY07) PO90567 2006 KE-Inst Reform & CB TA 0.00 25.00 0.00 0.00 0.00 21.96 8.38 0.00 (FY06) PO72981 2005 KE-GEF W KE Int Ecosys 0.00 0.00 0.00 4.10 0.00 3.07 1.18 0.00 Mgmt SIL (FY05) PO83131 2005 KE-Energy Sec Recovery Prj 0.00 80.00 0.00 0.00 0.00 76.96 41.64 0.25 (FYOS) PO83250 2005 KE-Financial & Legal Sec TA 0.00 18.00 0.00 0.00 0.00 16.33 4.78 2.88 (FY05) PO85007 2005 MSME Competitiveness 0.00 22.00 0.00 0.00 0.00 19.68 10.61 0.00 PO82396 2004 KE-Agricultural Productivity Prj 0.00 27.00 0.00 0.00 0.00 15.69 11.02 0.00 (FY04) PO78209 2004 KE-Dev Learning Centre LIL 0.00 0.00 0.00 0.00 0.00 1.61 0.64 0.00 (FY04) PO82615 2004 KE-Northem Corridor Tmsprt 0.00 207.00 0.00 0.00 0.00 187.71 92.01 0.00 SIL (FY04) PO49618 2004 KE-Nairobi Wtr & Swg Inst Rst 0.00 0.00 0.00 0.00 0.00 6.95 6.06 0.00 SIL (FY04) PO82378 2003 KE-Free Primary Edu Supt 0.00 0.00 0.00 0.00 0.00 0.19 -2.28 0.00 (FY03) PO78058 2003 KE-Arid Lands 2 SIL (FY03) 0.00 60.00 0.00 0.00 0.00 81.62 -6.85 0.00 PO70718 2001 Regional Trade Fac. Proj. - 0.00 25.00 0.00 0.00 0.00 14.79 12.39 0.00 Kenya PO66486 2001 KE-Decentr Reprod Hlth & 0.00 50.00 0.00 0.00 0.00 28.13 21.93 23.88
HIViAIDS (FYO1)\, Total: 0.00 769.00 0.00 4.10 0.00 782.42 208.18 27.01
128 KENYA STATEMENT OF IFC’s Held and Disbursed Portfolio (In Millions ofUS Dollars)
Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic 2000 AEF AAA Growers 0.18 0.00 0.00 0.00 0.18 0.00 0.00 0.00 1997 AEF Ceres 0.93 0.00 0.00 0.00 0.93 0.00 0.00 0.00 1997 AEF Deras Ltd. 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 2000 AEF Lesiolo 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00 1998 AEF Locland 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00 2000 AEF Magana 0.60 0.00 0.00 0.00 0.60 0.00 0.00 0.00 1997 AEF Redhill Flrs 0.28 0.00 0.00 0.00 0.28 0.00 0.00 0.00 2005 BARCLAYS BK KEN 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1982 Diamond Trust 0.00 0.80 0.00 0.00 0.00 0.80 0.00 0.00 GTFP Barclays Ke 14.31 0.00 0.00 0.00 14.31 0.00 0.00 0.00 GTFP I& M BANK 2.71 0.00 0.00 0.00 2.71 0.00 0.00 0.00 2001 Gapco Kenya 12.78 0.00 0.00 0.00 7.78 0.00 0.00 0.00 2005 IM Bank 3.00 0.00 0.00 0.00 3.00 0.00 0.00 0.00 IPS(K)-Allpack 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 IPS(K)-Frigoken 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00 IPS(K)-Prem Food 0.00 0.1 1 0.00 0.00 0.00 0.11 0.00 0.00 1994 Intl Hotels-Ken 0.86 0.00 0.00 0.00 0.86 0.00 0.00 0.00 1996 K-Rep Bank 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 1999 K-Rep Bank 0.00 0.43 0.00 0.00 0.00 0.12 0.00 0.00 2006 Kingdom Hotel 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Kongoni 1.96 0.00 0.00 0.00 1.96 0.00 0.00 0.00 2000 Mabati 2.50 0.00 4.50 0.00 2.50 0.00 4.50 0.00 2004 Magadi Soda Co. 22.00 0.00 4.00 0.00 18.90 0.00 4.00 0.00 2005 Magadi Soda Co. 2.50 0.00 0.00 0.00 0.57 0.00 0.00 0.00 1994 Panafrican 10.28 0.00 0.00 0.00 10.28 0.00 0.00 0.00 1996 Panafrican 15.55 0.00 0.00 0.00 15.55 0.00 0.00 0.00 2006 Panari Center 6.30 0.00 1.oo 0.00 0.00 0.00 0.00 0.00 1972 TPS EA Ltd. 0.00 0.04 2.20 0.00 0.00 0.04 2.20 0.00 2000 Tsavo Power 9.91 0.83 0.85 13.91 9.91 0.83 0.85 13.91 Total portfolio: 140.23 3.63 12.55 13.91 93.90 3.32 11.55 13.91
Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2006 Greenlands 0.00 0.00 0.00 0.00 2005 Barclays-Kenya 0.01 0.00 0.00 0.00 2006 Adv Bio-Extracts 0.01 0.00 0.00 0.00 Total pending commitment: 0.02 0.00 0.00 0.00
129 Annex 14: Country at a Glance KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Kenya at a qlance 9/26/07 sub- Key Development Indicators Saharan LOW Ape dlstribution, Kenya Africa income ZOO6 (ZOOS) I Maie Female Population, mid-year (millions) 35.1 770 2,403 70.74 Surface area (thousand sq. km) 580 24,265 29,215 BW Population growth (%) 2.6 2.3 1.8 (a54 Urban population (% of total population) 21 36 30 40-14 3c-u GNI (Atlas method. US$ billions) 20.5 648 1,562 GNi per capita (Atlas method, US$) 580 842 650 2024 GNI per capita (PPP, international $) 1,300 2,032 2,698 IC14 0-4 GDP growth (%) 5.7 5.6 8.0 20 10 0 10 20 GDP per capita growth (96) 3.1 3.2 6.1 prcsnl
(most recent esilmate. 2000-200s)
Poverty headwunt ratlo at $1 a day (PPP, %) 23 41 ' Jnder-5 moltallly rate (per 1,000) Poverly headcount ratio at $2 a day (PPP, %) 58 ' 72 Life expectancy at birth (years) 49 47 59 Infant mortality (per 1,000 live births) 79 96 75 Child malnutrition (%of children under 5) 20 29
Adult literacy, male (%of ages 15 and older) 78 69 72 Adult literacy, female (%of ages 15 and older) 70 50 50 Gross primary enrollment, male (% of age group) 114 98 108 Gross primary enrollment, female (%of age group) 110 86 96
Access to an improved water source (96 of population) 61 56 75 ISM I895 2mO 2005 Access to improved sanitationfacilities (% of population) 43 37 38
0 Kenya ID Sub-SaharanAfrica
Net Aid Flows 1900 1990 2000 ZOO6 '
(US%millions) Net ODA and omcial aid 393 1.181 510 768 Srowth of GDP and GDP per caplta (H) Top 3 donors (in 2005): United States 39 95 46 138 United Kingdom 39 67 73 86 OT Japan 27 93 67 61
Aid (%of GNI) 5.6 14.4 4.1 4.0 Aid per capita (US$) 24 50 17 22
Long-Term Economic Trends w 95 W 05 Consumer prices (annual % Change) 12.3 -22.1 10.0 11.8 GDP implicit deflator (annual % change) 9.6 10.6 6.1 -0.4 -QDP -0DPpsrcaplIa Exchange rate (annual average, local per US$) 7.4 22.9 76.2 72.1 Terms of trade index (2000 = 100) 77 64 100 94 1980-90 1990-2000 2000-06 (average annual gmwih %) Population, mid-year (millions) 16.3 23.4 30.7 35.1 3.6 2.7 2.3 GDP (US$ millions) 7,265 8.591 12,705 21.186 4.2 2.2 3.8 (% Of GDP) Agriculture 32.6 29.5 32.4 27.9 3.3 t,9 3.0 Industry 20.8 19.0 16.9 17.4 3.9 1.2 4.2 Manufacturing 12.8 11.7 11.8 12.1 4.9 1.3 3.7 Sewices 46.6 51.4 50.7 54.8 4.9 3.2 3.3 Household final wnsumpUon expenditure 62.1 62.8 75.5 76.5 4.5 3.6 4.3 General gov't final consumption expenditure 19.8 18.6 15.1 15.5 2.6 6.9 0.1 Gross capital formation 24.5 24.2 17.4 17.1 0.4 6.1 3.3
Exports of goods and sewices 29.5 25.7 21.6 24.3 4.4 1 .o 7.3 imporis of gwds and sewices 35.9 31.3 29.6 33.3 1.9 9.4 5.5 Gross savings 15.4 18.6 15.2 10.0
Note: Figures in italics are for years other than those specified. 2006 data are preliminary. .. indicates data are not available. a. Country poverty estimate is for 1997. b. Ald data are for 2005.
Development Ewnomics, Development Data Gmup (DECDG).
130 Kenva
Balance of Payments and Trade 2000 2006 IGovernanca Indlcatora. 2000 and 2006 (US$ mllllons) Total mehhandise exports (fob) 1,773 3,120 Total merchandise Imports (ci0 3,033 5,416 Vole and aCmunlabllily Net trade in goods and services -1.015 -1.914 Political stabildy W&ers' remittances and wmpensation of employees (receipts) 538 524 Rwulaiov quality
Current acwunt balance -284 -1.507 Rule of law as a % of GDP -2 2 -7.1 Conlml of corruption
Reserves. including gold 897 2,654 0 25 50 75 1W
Central Government Finance 82008 Country's ferrem110rank(0-100) 1 02000 hWwmluM!m@Merml,w (% of GDP) Current revenue (includinggrants) 18 8 23.4 Tax revenue 158 15.8 Current expenditure 18 3 19.3 Technology and Infrastructure 2000 2005 Overall surplus/deficit 06 -3.1 Paved roads (% of total) 12.1 14.1 Highest marginal tax rate (%) Fixed line and mobile phone Individual 30 30 subscribers (per 1,000 people) 14 143 Corporate 30 30 High technology exports (%of manufacturedexports) 3.9 3.1 External Debt and Resource Flows Envlronment (US$ millions) Total debt Outstanding and disbursed 8,145 6,168 Agncultural land (% of land area) Total debt service 59 1 236 Forest area (% of land area) 8.3 6.2 Debt relief (HIPC. MDRI) - Nationally protected areas (% of land area) .. 12.6
Total debt (Oh of GDP) 48 4 32.1 Freshwater resources pw capita (cu meters) .. 604 Total debt service (% of exports) 21 2 4.5 Freshwater withdrawal (Oh of internal resources) 7.6
Foreign direct Investment (net inflows) 111 21 C02 emissions per capita (mt) 0.34 0.27 Podfolio equity (net infiows) -6 3 GDP per unit of energy use (2000 PPP $ per kg of oil equivalent) 2.1 2.1 'omporltlon of total external debt, 2005 Energy use per capita (kg of 011 equivalent) 490 506
I2.663 /IDA (US$ millions)
IBRD Total debt outstanding and disbursed 47 0 Disbursements 0 0 Principal repayments 40 0 159 Interest payments 7 0
IDA Total debt outstanding and disbursed 2,262 2,764 Disbursements 170 43 Private Sector Development 2000 2006 ~otaldebt service 45 82
Time required to start a business (days) -54 IFC (fiscal year) Cost to start a business (% of GNI per capita) - 48.3 Total disbursed and outstanding portfolio 99 118 Time required to rwister property (days) - 73 of whlch IFC own acwunt 99 104 Disbursementsfor IFC own acccunt 40 24 Ranked as a malor constraint to business Portfolio sales. prepayments and (%of managers surveyed who agreed) repayments for IFC own account 14 10 Access tdwst of financing .. 72.5 Conuption .. 72.5 MlGA Gross exposure 42 51 Stock market capitalization (% of GDP) 10.1 53.7 New guarantees 37 7 Bank capita to asset ratio (%) 12.9
Note: Figures in italics am for yeare other than those specified. 2006 data are preliminary. 9128/07 ., indicates data are not available. -indicates observation is not applicable.
Develc+ment Economics. DevelopmentData Group (DECDG)
131 Millennium DeVelODment Goals Kenya
W/th selected targets to achieve between 1990 and 2015 (est/mate closest to date shown, +/- 2 pars)
Goal I:halve the rates for $1 a day poverty and malnutrltion 1890 1995 zoo0 2005 Poverty headcount ratio at $1 a day (PPP % of population) 335 22 8 Poverty headcount ratlo at national poverty line (% of population) 52 0 Share of income or consumptionto the poorest qunitiie (%) 34 60 Prevalence of malnutrition (% of children under 5) 22 6 21 2 I9 9
Goal 2: ensure that chlldrsn are able lo complete prlmary schooling Pnmary schml enrollment (net, %) 67 79 Pnmary complebon rate (%of relevant age group) 95 Secondary schml enrollment (gross, %) 28 39 49 Youth literacy rate (%of people ages 1524) 80
Goal 3: ellmlnale gender dlsparlty in education and empower women Rabo of giris to boys in pnmary and secondary educahon (%) 84 98 96 Women employed in the nonagnculturalsector (% of nonagnculturalemployment) 21 27 33 38 Pmportion of seats held by women in national parliament (%) 1 3 4 7
Goal 4: reduca undei'-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 97 111 117 120 Infant morWty rate (per 1,000 llve births) 64 72 77 79 Measles Immunization(proporilon of one-year 016s immunized, %) 78 83 75 69
Goal 5: reduce maternal mortallty by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 1,000 Births attended by skilled health staff (% of total) w 45 44 42
Goal 6: hall and bepln to reverse the spread of HlVlAlDS and other major diseases Prevalence of HIV (% of population ages 1549) 6.1 Contraceptive prevalence (% of women ages 1649) 27 33 39 39 Incidence of tuberculasis (per 100.000 people) 108 217 436 641 Tuberculosis cases detected under DOTS (%) 55 46 43
Goal 7: halve lhe proportlon of people without suslalnable access to basic needs Access to an improved water source (% of population) 45 52 57 81 Access to improved sanitation facilities (% of population) 40 41 43 43 Forest area (% of total land area) 6.5 6.3 6.2 Nationally protected areas (% of total land area) 12.6 C02 emissions (metric tons per capita) ' 0.2 0.3 0.3 0.3 GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent) 2.1 2.2 2.1 2. I
Goal 8: develop a global partnerrhlp for development Fixed line and mobile phonesubsuibera (per 1,000 people) 7 10 14 143 Internet user8 loer 1.000 oeoole) 0 0 3 32 Personal cornditers (per1.000 peop e) 0 1 5 9 Y0.m mempoyment (% 01 tota aoorforce ages 15-24]
leasles lmmunlzatlon (% of l-ar olds) llCT Indicators (per 1,000 people)
125. 1 zw 'w. I50 15- -e IW 25. 50 moa m2 2w5 0 moa zw2 2005 Pnmary net enmllment ratio OFixed + rmbile Subcnters --0- Ratio of QI~Sto boys in pnrnary & OKenya QSubSaharan Afnca internet usam 6Bcnndary edudlon I
Note: Figures in Italics are for years other than those specifled. .. indicates data are not available 9128IOl
Development Economics, Development Data Group (DECDG).
132 Annex 15: Principles and Premises Governing the Project KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
1. The project will be governed by a set ofprinciples and premises to ensure its alignment and consistency to a phased-support approach ofthe Bank in supporting a part ofthe wider sector reform process that is also supported by other development partners.
2. Principles of Phased Bank Support. The Bank and the GOK agreed on an approach to support the sector reform in a phased manner. In the first phase a transparent and sustainable service delivery framework is put in place in Nairobi as a means to demonstrate the feasibility of the institutional setup envisaged in the Water Act (2002). The ongoing Nairobi Water and Sewerage Institutional Restructuring Project (NWSRP) focused on institutional restructuring and premised consideration of future investments on the creation of a demonstrably sustainable and transparent service delivery framework. A similar framework could be envisaged to be expanded into other areas and form the basis for sustainable infrastructure investments.
3. Consistency and Interlinkages between Phases. Each phase ofsupport in effect forms a critical justification for the next. Therefore, there is a need to demonstrate continuing satisfactory implementation ofNWSIRP as well as the stability ofthe service delivery and institutional framework supported under NWSIRP. The WaSSIP project will need to build from the successes, and learn from the experiences and lessons, ofNWSIRP. This implies that some baseline pre-requisites for WaSSIP would follow the precedents set by NWSIRP, especially in the areas of(i) Framework Agreements governing the service provision, (ii)governance structures ofWSBs and WSPs, and (iii)governance, transparency and accountability in operations. While the following is non-exhaustive, they will be required in all areas / locations where WaSSIP support is envisaged:
0 The Board ofDirectors ofAWSB, CWSB and LVNWSB should comprise a satisfactorily diversified group of stakeholders and should have signed Codes ofConduct /
AWSB, CWSB and LVNWSB to have fully appointed a full complement ofsuitably qualified management personnel and confirmed by June 30,2008 (per the provisions of the Transfer Plan) that all staff are full employees;
0 For all areas to be supported by the project, the associated WSP has been legally formed36prior to investments, and has appointed a full complement ofsuitably qualified management personnel. By June 30,2008 (per the provisions ofthe Transfer Plan) all water and sewerage operational personnel should be staff ofthe Water Service Providers (WSPs);
35 Similar to those signed by the Board of Directors of AWSB and NWSC, which should also be consistent with the Public Officers’ Ethics Act (2003) 36 Under the Water Act (2002), WSBs generally cannot be direct operators ofthe WSS services.
133 The Board ofDirectors ofthe WSP should comprise a satisfactorily diversified group of stakeho1de1-s~~and should have signed Codes ofConduct / Ethics;
0 All legal agreements (Services Provision Agreements, agreements on assets and liabilities, confirmation ofasset / liability ownership and control structures, etc.) to have been put in place.
4. Sequencing of Support amongst WSBs and WSPs. It is recognized that at any point in time each WSB and WSP differs in their status of institutional strengthening and support needs. In the first instance, the project will need to be flexible to sequence its support to AWSB, CWSB and LVNWSB. For example, institutional strengthening support would form the initial focus in CWSB. This is in recognition ofthe lack ofprevious support received by CWSB in this regard and is in conformance with the sequencing ofsupport implied by the agreed phased manner of support.
5. Consistency with Sector Legislations. The proposed project would be consistent in the first instance with the Water Act (2002) and the Transfer Plan. In recognition ofthe GOK effort to move towards the principle of Sector Wide Approach in Planning (SWAP) in the sector, the project will support a part ofthe overall GOK Sector Investment Plan (SIP), and be aligned with the Partnership principle^^^.
6. Implementation by Sector Institutions. The project will be implemented through the appropriate existing sector institutions in line with sector service delivery framework and respecting the autonomy and mandates ofthe institutions3' - no special purpose project implementation unit or agency will be utilized. Institutional strengthening ofsector institutions would form one objective of the project and support to this end provided where necessary. The project will, as much as possible, utilize the sector reporting and monitoring mechanisms and principles4' with necessary oversight and safeguards to be agreed with the GOK, in particular in the areas oftransparency, governance and risk management.
7. Flexibility in Supporting Overall Sector Program. The project will recognize the ongoing long term nature ofsector institutions. Project funds would support a part ofthe overall program ofeach institution aiming at assisting the achievement ofits overall program objectives. The project would focus its objectives and the monitoring ofoutcomes not only on the specific project supported activities but also on the overall progress ofthe sector institution to improve the quality and quantity ofservice delivery and increase access to reliable, affordable and sustainable water supply, sewerage and sanitation services. Given this principle, the project
37 Similar to the structure existing in NWSC whereby the local council / municipality, NGOs, trade associations, consumer associations, and registered professional bodies should be represented, none of which should have a majority on the board. The chairperson should be selected by the board members and should not be from the majority shareholders Le., local council / municipality 38 A set of guiding principles agreed by the GOK and development partners active in the WSS sector in Kenya. While this document is strictly non-binding, it does aim principally at helping to harmonize development partner and GOK activities in the sector and should be taken into account in the development and implementation ofWaSSIP. 39 This is consistent with the Partnership Principles and also would directly contribute to sector institution building and strengthening, an objective of the project. 40 Affirmed in the Partnership Principles.
134 would coordinate its resources with those ofother development partners and GOK to contribute to the overall program of the sector institutions. This implies the need to be flexible during project implementation in terms activities and infrastructure supported by the project, as long as the support remains within the overall program ofthe institutions and continue to meet all associated project frameworks, covenants and conditions. In particular,
It is recognized that new funding sources (from GOK, development partners, internal operational cash generation or others) may emerge during implementation that could be more appropriately utilized for various activities and investments programmed for project investments; and 0 It is recognized that the sector institution’s overall program is dynamic and subject to changes as the sector grows. The periodic (annual) review by each WSB ofits investment plans (to be done in conjunction with WSPs full participation and input) would be a feature of the pro’ect. This should be expected to change the investment and business plans ofthe WSBs 41 .
8. As such, the project should be flexible to move resources to other priority areas (both during design and implementation phase) conforming to the sector institution’s overall program and consistent with the project objectives:
9. Coordination and Synergy with Other Sector Reform Effort. The project would seek to encourage coordination, harmonization and participation ofmultiple development partners and other stakeholders in the sector reform effort and GOK sector development program. In addition, the project will seek to cooperate and encourage initiatives outside the sector institutions it is directly supporting in order to enhance and further the overall GOK sector reform program. For example, the activities by WSP-AF in the Citizen’s Report Card effort and the micro-financing activities complement the project efforts by encouraging stakeholder interest and oversight ofsector institutions and creates new channel for infrastructure financing respectively.
4’ The Bank’s internal project concept review specifically advised the Bank team that the mechanisms for including WSPs in the planning and decision making process, in particular on investment and assets, should be taken into account.
135 Annex 16: Sector Governance Strengthening and Project Transparency and Accountability Arrangements KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
1. The WaSSP project supports both (i)the institutional strengthening at the sector level under the framework ofthe Water Act (2002), as well as (ii)infrastructure investment at the project level to expand access to safe and adequate water and sanitation and improve the quality ofservice provision. As such, the WaSSP project incorporates design elements aimed at both levels:
(a) strengthening sector governance and enhancing the transparency and accountability of sector institutions, particularly at the Water Services Boards (WSBs) and Water Services Providers (WSPs), and
(b) safeguarding project investment funds and ensuring that project funds are used in an efficient way and for their intended purposes.
2. Project Support to Sector Governance Strengthening, The issues ofgovernance in the sector and the various project supports to ensure transparency and accountability in sector institutions have been referred to in various sections and annexes ofthis project document. Section A ofthis Annex attempts to summarize in a single chapter the (i)various governance related improvements in the sector since the GOK's sector reform started with the implementation ofthe Water Act (2002), and (ii)specific governance related strengthening measures undertaken and implemented during NWSIRP that will be continued, improved and augmented under WaSSIP.
3. Project Level Governance Risks - Transparency and Accountability Arrangements. The strengthening ofsector level governance would be expected to lead to increased levels of accountability and transparency at sector institutions Le., including in AWSB, CWSB and LVNWSB. In addition, the WaSSP project design also includes project-specific investment, procurement and financial management risk control actions and arrangements. Many ofthese have been referred to in various sections and annexes ofthis project document. Section B ofthis Annex summarizes them, together with their associated risk control actions (note that these project-specific risks and control actions may overlap with the overall sector strengthening efforts).
SECTION A - SECTOR GOVERNANCE STRENGTHENING
4. Legislative Foundation. Under the new institutional framework stipulated by the Water Act (2002) the mechanisms and the role ofthe various actors within that framework have been clarified. The new service delivery framework separates each aspect ofservice delivery into autonomous functions - policy making, regulation, asset ownership / control and service delivery operations. The consequent creation oflegal entities mandated for these functions and the formalization ofrelationships between these functions are expected to reduce conflicts ofinterest and increase transparency and accountability. By grounding this new service delivery framework within a comprehensive legislative framework [Water Act (2002)], the GOK
136 provided for a new institutional setup that in terms ofgovernance is an improvement over the previous system in that institutional responsibility and accountability have been made clear, with service delivery institutions subjected to specific contracts and transparent audits.
5. Governance in Project Development Objective - Principles of Phased Support. A key aim ofthe project is to support the refining and strengthening ofthe institutional structure of the sector, emphasizing on increasing accountability and transparency ofthe institutional governance and management framework (see Section ILC, ‘Project development objective and key indicators’). This aim provides the continuity within the overall phased approach taken by the Bank in supporting the sector reform. The focus ofthe initial support phase through the Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) was on supporting the creation ofa model oftransparent and accountable service delivery institutional framework. NWSIRP was narrowly targeted at a small and defined set ofinstitutions (one water services board and one water services provider4*) to reduce implementation risks, allow for focused implementation supervision and increase the chances ofsuccess. The experience ofNWSIRP has proven positive and the WaSSIP project can now build upon the experiences and lessons of NWSIRP to improve and at the same time scale up the transparent and accountable arrangements.
Governance in WSBs
6. Statutory Requirements. All Water Services Boards (WSBs) are ring-fenced public authorities subject to the provisions ofthe State Corporations Act (1986). Together with the Water Act (2002), this provides for a corporate governance structure that is clear and established. A Board ofDirectors provides a measure ofindependence and autonomy from the parent ministry. In the sector, this is strengthened by the practice ofappointing a diversified group of directors representing a number ofgovernment ministries and stakeholders representative ofthe districts served by the WSB. In keeping with the norms ofcorporate governance, the management is appointed by and answerable to the Board ofDirectors (with the Chief Executive Officer acting as an executive Director). Directors, officers and staff ofWSBs also come under the jurisdiction ofthe Public Officers’ Ethics Act (2003) which, among others, requires that board members / directors, the chief executive officer, managers / head ofdepartments and other senior staff to provide annual declaration ofthe income, assets and liabilities of themselves, their spouses and dependents. The WSBs are subject to annual audits by the office ofthe Controller and Auditor General (CAG). AWSB, CWSB and LVNWSB have been implementing these requirements since their formation43. Annual audits (subject to deadlines) in line with these requirements are covenanted under the NWSIRP and will be continued under WaSSIP. Under WaSSIP, the results ofthe audits will be made public in an accessible manner.
7. Performance Accountability to Sector Regulator. WSBs are subject to the provisions ofthe Licenses granted to them by the sector Regulator - WSRB. WSBs (and their appointed
42 Athi Water Services Board and the Nairobi City Water and Sewerage Company 43 AWSB in 2003; CWSB and LVNWSB in 2004. All three WSB have benefited to a greater or lesser extent from development partner supported projects /programs. AWSB has benefited from the Bank’s NWSIRP (FY04), KfW has a long term program supporting LVNWSB since abut 2005. AFD’s project preparation grant is now being implemented by CWSB.
137 Water Services Providers - WSPs) will be required to adhere to the monitoring regime stipulated by WSRB. This will principally be implemented through a sector wide data collection and monitoring system (WARIS) that has been developed and is currently being piloted. This is expected to be rolled out from WSB to WSB starting in 2007. The data will be analyzed and disseminated by the WSRB as quarterly and annual sector reports, providing information on the overall sector performance as well as the performance ofeach WSB. The indicators designed in the WARIS software provide a comprehensive coverage ofthe water and sanitation sector issues, including financial (revenue collection, operating costs, operating ratio, cost recovery), commercial (water coverage, domestic and shared connections, communal water points, sanitation types and coverage, UFW, metering and billing ratio, collection efficiency, customer complaints), technical service levels (average hours ofsupply, compliance with required quality) and personnel (staff per 1000 connections). This would provide a continuous means by which information on operational and comparative performances are accessible to the public. The WSRB has the power penalize non-performance.
8. Performance Accountability to GOK. As the parent ministry providing oversight over the WSBs, the MWI will receive quarterly and annual reports from WSBs. As part ofthe overall GOK’s focus to increase the effective and accountable use ofpublic resources through Results- Based Management (RBM) systems, each WSB agrees on a set ofperformance targets annually with MWIthrough a formal Perfonnance Contract. The Performance Contracts and associated reports are subject to the oversight ofthe Performance Contract Secretariat in the Office ofthe President. An audit is performed annually by independent auditors appointed by the Secretariat. Under WaSSIP, the Performance Contracts, associated reports and audit results ofAWSB, CWSB and LVNWSB will be made public in an accessible manner.
9. Other specific actions undertaken by AWSB under NWSIRP. Under NWSRP, AWSB has:
0 Developed and implemented a governance training regime for members ofthe Board of Directors, including a program to sensitize the directors to their roles and responsibilities; 0 Developed a Code ofEthics / Conduct that are signed by each director44; 0 Formed a Corruption Prevention Committee and appointed Integrity Officers at each district.
These will be continued in AWSB and scaled up to CWSB and LVNWSB during WaSSIP and provisions made for capacity building and training in this regard.
10. Specific Project Actions. As the implementing agencies, AWSB, CWSB and LVNWSB are the principal entities accountable to the project operations and funds. AWSB, CWSB and LVNWSB will undertake a series ofactions that are consistent with good fiduciary and procurement practices. These include:
0 Development and implementation ofan Institutional Risk Management Policy Framework (IRMPF), which will include mechanisms to strengthen the internal audit
44 These codes are consistent with the Public Officers Ethics Act (2003)
138 function, measures to further strengthen the Finance and Audit Committees, and measures to strengthen the systems for public disclosure ofinformation and complaints handling in the AWSB, CWSB and LVNWSB; 0 Strengthen WSB audit, finance and tender committees to provide internal oversights on the monitoring ofthe IRMPF and audits, monitoring ofoperational budgets and financial reporting, and monitoring ofprocurement respectively; 0 Public disclosure ofinformation regarding the project including implementation progress and operational results; 0 Development and implementation ofa communications plan to actively provide information and solicit feedback regarding the project, the WSB and the sector reform to stakeholders; 0 Establishment ofa complaints handling mechanism with explicit arrangements for collation ofinformation, follow-up action and public reporting; 0 Adherence to procurement practices required by Bank procurement guidelines and the Public Procurement Act (2005), including the publication ofsimplified procurement plans and updates, and publication ofthe award ofcontracts.
11. Websites. Various means will be utilized to accomplish the range ofinformation disclosure and dissemination activities ofAWSB, CWSB and LVNWSB. In order to provide a ‘one-stop’ venue for the accessing ofinformation by the public and other stakeholders, AWSB, CWSB and LVNWSB have each developed their own websites. All information to be disclosed as described above will be made available through the respective websites, as well as other selected avenue(s).
Governance in WSPs
12. Functions and importance of WSPs. Water Services Providers (WSPs) are not the implementing agencies ofthe WaSSIP project and therefore do not form the principle accountability entities for the WaSSP project. However, as agents ofthe WSBs, they are the vehicles through which WSBs would ensure the provision ofwater and sewerage services to the customers and beneficiaries and achieve the service provision and other targets of the WSB and the project. Through the relevant WSBS~~,WSPs in the project area are expected to benefit from project support to improve their operation and expand the coverage ofservice provision. WSPs may also be delegated by the WSBs to carry out on their behalf some functions and activities which may be supported by the project.
13. Statutory Requirements. Under the provisions ofthe Water Act (2002), Water Services Boards (WSBs) would retain Water Service Providers (WSPs) to provide the water and sewerage services. WSBs have the responsibility to define suitable operational area(s), identify and appoint WSPs to provide services in these areas. The appointment is done through a contract between the WSB and WSP (a Service Provision Agreement - SPA) subject to the oversight of the Regulator - WSRB. The WSP must be legal entities capable ofexecuting the SPA46. In keeping with the principle ofautonomy, WSPs have been created as autonomous entities under a
45 And the use of Utility Provision Agreements between the WSB and WSP 46 Local Authorities may not act directly as a WSP.
139 number ofstatutory provisions e.g., the Companies Act (1962), Cooperative Societies Act (1997), etc. These statutory provisions provide for a corporate governance structure that is clear and established.
14. WSPs as Commercialized Entities. While it is not a requirement under the Water Act (2002), most ofthe WSPs appointed thus far are limited liability companies owned by local authorities or where local authorities and/or communities have a major stake. All WSPs within the WaSSIP project areas / locations are expected to follow this arrangement. These WSPs are subject to the provisions ofthe Companies Act (1962).
15. Board Structure of WSPs. A Board ofDirectors provides a measure ofindependence and autonomy from the shareholder(s). In order to ensure a measure ofautonomy, representation ofbroad stakeholder voice and to prevent the capture ofthe WSP by any particular interest group, the Board ofDirectors of these WSPs comprises a satisfactorily diversified group of stakeholders with the local authority itself holding a minority number ofBoard seats. The Chairman is elected by the Board ofDirectors but not drawn from the local authority representatives. In the case ofNairobi city (supported under the NWSIRP), the Board of Directors ofthe Nairobi City Water and Sewerage Company47(NWSC) consists ofnine members a majority ofwhich are external from the City Council ofNairobi (CCN). The Board members are (i)the Mayor; (ii)the Town Clerk; (iii)the City Treasurer; (iv) the Water Committee chairman (CCN); (v) the Finance Committee chairman (CCN); (vi) a representative ofthe Justice and Peace Commission (an NGO); (vii) a representative ofthe Kenya National Chamber ofCommerce and Industry; (ix) a representative ofPlan International (an NGO); (viii) a representative ofthe Institute ofCertified Public Accountants; and (ix) a representative of Amref (an NGO). The Managing Director serves as an executive Board ofDirector. Since the start ofthe sector reform, this principle appears to have become the norm and is observed in WSPs appointed throughout Kenya. Under WaSSIP, this arrangement will be continued and strengthened.
16. Audits. The WSPs formed under the Companies Act (1962), are subjected to various statutory provisions including (i)annual general meetings, (ii)provision of annual returns to the Registrar of Companies, and (iii)statutory financial audits with a set ofminimum information requirements for financial statements and auditor’s report.
17. Performance Accountability to Sector Regulator (WSRB). WSPs (through the WSBs) would be an integral part ofthe sector reporting mechanism (as described in paras. 7 and 8 above). In addition?the Service Provision Agreement (SPA) between the WSB and WSP is subject to the oversight ofthe Regulator (WSRB).
18. Performance Accountability to WSB. WSPs (per the provision ofthe Service Provisions Agreements with WSBs) will submit quarterly performance report to WSBs consistent with the reporting requirements set by WSRB. These reports will include the status of the compliance with the SPA and other operational performance indicators. The key SPA indicators include, amongst others, water and effluent quality, metering, connections, transmission and distribution losses, bursts and repair time, system pressure, sales and collection
47 Currently owned by the City Council of Nairobi (CCN) as sole shareholder.
140 efficiency. Under NWSIRP, the AWSB appointed an external auditor to carry out quarterly and annual financial and technical audits on the implementation ofthe SPA to provide an independent assessment ofthe WSP’s compliance with the SPA and the SPA / project outcome indicators. Under WaSSIP, this practice will be continued by AWSB, CWSB and LVNWSB in WSP areas supported by the project. In addition, the results ofthese audits will be made public in an accessible manner.
19. Other specific actions undertaken by NWSC under NWSIRP. Under NWSIRP, the Nairobi City Water and Sewerage Company (NWSC) have:
Carried out governance training for members ofthe Board ofDirectors, including a program to sensitize the directors to their roles and responsibilities; Developed a Code ofEthics / Conduct that are signed by each director; 0 Installed a comprehensive billing, collection and customer management system to enhance the traceability ofservice delivery operations.
Corporate governance training is now required under the National Water Services Strategy (2007 - 2015). Under WaSSIP, the practice ofeach director undertaking the Code ofEthics / Conduct would be continued in the project areas where the WSP is majority owned by the public institutions (for consistency with the Public Officers’ Ethics Act of2003). The project will also support the establishment and improvement ofbilling, collection and customer management systems where these have not been implemented andor are necessary.
20. Internal Controls. As the direct provider ofwater and sewerage services in Nairobi, the operations ofNWSC is fairly complex and encompasses the range ofretail utility business activities including network operations and maintenance; water production, transmission and delivery; metering and meter reading; billing and collection; customer interactions and management. Under the support ofNWSIRP, NWSC undertook a comprehensive exercise to develop an operational risk management framework focused on the internal control structures of its operations. This exercise included:
a The review ofexisting policies, procedures and operating / control manuals; a The review ofkey business processes and workflows, highlighting the control procedures and monitoring activities associated with each business process or activity; a The critiquing the existing control environment and recommend additional controls that would improve the system of controls; a The development and documentation ofan internal auditing and monitoring system that can be used to assess compliance with the procedures and controls defined by the Directors and Management; a The development and documentation of appropriate internal control frameworks summarizing the key operational, compliance and financial controls; and a The developing and implementation of a detailed training program.
21. It is recognized that the degree of sophistication ofinternal control requirements is dependent on the size and complexity ofthe utility. The WSPs within WaSSIP’s project areas would consist of a range ofsizes, complexities (Nairobi is by far the largest WSP operation in
141 Kenya) and operational modes. Through the WSBs, WaSSIP would support the strengthening of WSP internal control structures as required. Initially a small number ofthe larger WSPs would be selected for this exercise. The success, utility and value for money ofthis exercise would be reviewed. It is expected that if proven successful this exercise would be adapted by the WSBs and rolled out in phases to other WSPs.
Enhancing Social Accountability,
22. Interactions with Stakeholders. The measures for transparent operations and disclosure ofinformation outline above would serve to provide the basis to enhance the social accountability ofservice delivery institutions. The communications plan to be carried out by AWSB, CWSB and LVNWSB would provide information and solicit feedback regarding the project, the WSB and the sector reform. Under the NWSIRP, a series ofstakeholder consultation workshops were carried out by AWSB to provide a channel for periodic information feedback from stakeholders. These can be used to improve the operations and service provision. Under WaSSIP, AWSB, CWSB and LVNWSB would carry out such stakeholder consultation, at a minimum once prior to the project mid-term review and once during the final two years ofthe project.
23. Partnership. The process ofbuilding the capacity and civic responsibilities of stakeholders for improved social oversight is a long term exercise which transcends specific projects and needs to be approached through a multi-pronged strategy. The GOK and various development partners are supporting the sector at various levels and working with different stakeholders, providing an opportunity to coordinate various governance related actions with different stakeholder groups and maximize the comparative advantages ofdevelopment partners. The development partner sector working group (WSTG), the GOK-development partner dialogue mechanism, and the annual GOWdevelopment partner joint sector review would provide the framework for such coordination. The Bank will strive to work with development partners and civil society organizations, in particular those with comparative advantage and strength in community and stakeholder capacity development. For example, the Citizens Report Card initiative being undertaken by WSP-AF in Nairobi, Mombasa and Kisumu could developed into a periodic exercise to help provide for an independent assessment ofthe quality ofservice provision. The pilot program ofUNDP, SIDA and Hurist for applying anticorruption measures . in the water sector through human rights based approaches is also targeted at increasing citizen awareness and oversight, and strengthening capacities oflocal civil society organizations, communities and local authorities to work with anti-comption tools in the water sector and to promote cooperation between them.
SECTION B - PROJECT SPECIFIC GOVERNANCE RISKS - TRANSPARENCY AND ACCOUNTABILITY ARRANGEMENTS
24. Project-specific governance risks that have been identified together with their associated risk control actions are described in Table A. 17.1.
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. . 0 .e . .. 0 0 ... Annex 17: Summary of Communications Strategy KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
1. The project will include a communications strategy that provides the broad framework to guide the communication program and identifies the issues that need to be addressed to build understanding and generate support for the reforms and the project. Under the communications plan, WSBs will carry out public information programs to key audience segments to increase awareness and transparency. The following is a summary ofthe communications strategy that has been developed for the project.
Broad Objectives
2. The broad objectives ofthe communication strategy are to:
a Increase the awareness and improve the knowledge among key stakeholders ofthe roles and mandate ofthe water services boards in water sector reforms within their areas of jurisdiction; a Build support among key audience segments for the Water Services Boards’ (WSBs’) policies and approaches in water services provision and sanitation; a Increase the proportion ofwater service providers and key collaborators with correct knowledge and motivation to work productively with the Water Services Boards (WSBs) in implementing their programs.
Key Issues
3. Key issues that need to be addressed to build understanding and generate support for the reforms and the project were identified through a rapid assessment conducted with key stakeholders to guide the development ofthe communications strategy. The issues identified are summarized as follows:
While communication strategies exists in the Water Service Boards (WSBs), the current practices have yet to filly achieve their intended impacts; The existing strategies are mainly geared towards the creation ofawareness among the stakeholders and members ofthe public to the WSBs and WSPs; A significant percentage ofthe customers seem not to filly understand the mandate ofthe WSBs and are not aware ofthe fact that they are a recourse in case they do not receive satisfactory services from the Water Service Providers (WSPs); Communication does not trickle well to the WSPs as most WSPs lack effective communication strategies to elicit feedback from their target audiences; The communications department in the WSPs lack strong positioning within the organization and are not given priority in allocation offunds; There is a lack ofadequate finds and qualified personnel in operations which impacts negatively on the communications function ofthe WSBs and WSPs. They are not able to effectively carry out their mandate resulting in non-achievement ofthe goals ofthe strategies.
146 Key Audience Segments
4. The key target audiences to be reached through the communications plan have been identified based on the overall objectives and specific strategies ofthe Communication Strategy. The key target audience is as follows:
Water Sector Leadership and Management. The support ofinfluential persons and key policy and decision makers in the water sector is needed to build a supportive environment for the implementation ofthe project; Opinion Leaders. These will include Members ofParliament (MPs), Councilors, Provincial Administration and professional and resident associations and leaders ofcivil society organizations. They represent the views ofkey groups that they represent thus are ideal to involve when seeking feedback from the community. As credible representatives in their communities, they will be used to deliver key messages on reform activities; Regulatory Authorities. The Water Services Regulatory Board (WSRB) licenses WSBs across the country and has oversight ofthe sector. The WSRB is also responsible for issues such as tariff setting; Internal Staf$ Staff at the WSBs will regularly be updated on what the institutions are doing. The capacity ofthe communication departments will also be strengthened through the development ofstronger communication policies and supporting staff for training; Water Service Providers (WSPs). As the WSPs are the key direct link with the consumers, they will serve as critical partners especially while implementing communication activities targeting communities. The WSBs will maintain regular communication with WSPs so as to encourage synergy and coherence; a Consumers. Target groups will include individual consumers in the urban and rural settings, community water schemes, school children, industrial and commercial customers. Each ofthese groups have been chosen because they have particular needs that could be addressed through tailored messages and through the most appropriate channels; Media. Media decision makers (editors, executives, and program directors) and journalists serve as the key link between the WSBs and the communities. They will serve as valuable partners in helping increase knowledge and understanding on ongoing reform activities; Implementing Partners: These include respective WSPs, NEMA, the Ministry ofHealth, WSRB, the Ministry ofEducation, Provincial Administration and development partners. These partners need to be regularly updated on what the WSBs are doing and how they can assist in improving water services. For communication from WSBs to be effective, it will be critical to implement targeted activities with strategic partners so as to leverage outreach.
Implementation Strategies
5. Communication activities will be implemented in a phased manner outlined as follows:
147 Phase 1. Consolidating the gains and clearing the constraints to progress. This will be done in the first year. Phase 2. Strengthening the capacity for strategic communication, engaging key stakeholders and building support at critical levels. This phase will be implemented in the second year. Phase 3. Maintaining and reinforcing achievements and gains being made. This will be undertaken by inspiring and motivating sector implementing agencies, and by documenting and disseminating best practices. This will be done in years three, four and five.
6. The broad objectives ofthe communication plan will be achieved through the following specific implementation strategies and strategic approaches:
Themed policy communication and engagement with selectedpolicy audiences, sector players, key stakeholders and influential opinion leaders on the mandate, roles, achievements and challenges of the respective WSBs within their areas of jurisdiction, This strategy will be achieved through proactive engagement with policy audiences and a public communication campaign providing general information on the water reforms activities. This will aim at building a critical mass ofpeople within the general population knowledgeable about the reforms in order to provide a conducive environment for the WSBs and WSPs to operate; Targeted communication and engagement with sector players on the achievements, expectations and challenges of WSBs and WSPs and the components of theproject. This will be undertaken within the auspices ofthe WSRB at the national and regional levels to clarify and reinforce the role ofopinion leaders at the national level; Media leveraging to promote accurate coverage on the reforms and ongoing project. The media will be leveraged as a strategic partner through a proactive media relations program. Under this strategy, the media will also be used as one ofthe channels for communicating the reforms to the public. WSBs and WSPs will proactively engage media organizations by providing them with information and tools to facilitate accurate and analytical coverage ofthe ongoing project, reforms and water issues. Capacity strengthening and production of sector and project related communication tools and materials undertaken centrally to build coherence and synergy across implementing bodies. It will be cost effective to develop and produce a core set of communication products and services centrally. This set will support the work ofthe project throughout and can be undertaken with participation ofother key sector players e.g., the WSRB and the Ministry of Water and Irrigation (MWI), and key development partners e.g., WSP-AF and GTZ. Primary information materials on the project and a communication planning guide will be developed, and a series of skill building communication planning workshops for communication implementers and sector managers carried out. Technical assistance will be provided to help WSBs align more sharply their communication strategies with their business and organizational objectives. Motivate and energize participating institutions through an annual inspirational event in the format of a “Water Forum” designed to promote knowledge sharing and motivate and inspire sector bodies to apply bestpractices in their work. To promote knowledge sharing and application ofbest practices in engaging and mobilizing
148 stakeholder and communities, a high profile special event will be designed and organized in the second year. This event which will be in the format ofa stakeholder workshop will be designed to provide a platform for sector bodies to share lessons from well documented cases ofbest practices.
4. The proposed workplans for implementation are as follows:
Strategy 1: Themed policy communication and engagement with selected policy audiences, sector players, key stakeholders, the media and influential opinion leaders on the mandate, roles, achievements and challenges ofthe respective WSBs within their areas ofjurisdiction.
Activities Outcome Partners Resource Indicators Requirements 1 Develop a project information kit . Increased WSPS Writing, design and containing sheets on the scope of the awareness of WSRB printing costs project, role of different partners the project and The WorldBank Logistics and directed to different audience segments improvements Local Authorities disseminationcosts with decision making power being made in MWI Meeting and logistic 1 Develop and produce a briefing kit for the water sector Development Partners costs champions detailing the scope of the NGOs, CBOs and other project and achievements at various community groups stages implementingprojects Identify forums with selected policy audiences are involvement and proactively engage with them at that level
Strategy 2: Targeted communication and engagement with sector players on the achievements, expectations and challenges ofWSBs and WSPs and the components ofthe project.
Activities Outcome Partners Resource Indicators Requirements 1 Develop and produce in user friendly . Increased 1 WSPS 1 Writing, design and formats briefing materials with regular knowledge on 1 Development partners printing costs updates on the project for key sector progress that . Meeting costs players the WSBs are 1 Logistics and
1 Develop and produce project making through dissemination costs communication materials specific to the project each WSB
1 Disseminate materials developed through project meetings and regular mailing schedules to specific contact persons in key stakeholder institutions
149 Strategy 3: Leverage the media as a strategic partner to report on reforms.
Activities Outcome Partners Resource Indicators Requirements
1 Develop and produce a media kit with 1 Information on WSPS 1 Writing, design and information materials written in media key areas of WSRB printing costs
friendly format on key achievements progress and The World Bank 1 Logistics and and activities taking place. The media major Local Authorities dissemination costs
kit will contain backgrounders, tip achievements MWI 1 Meeting and logistic sheets, fact sheets, series ofnews available to Development Partners costs features media NGOs, CBOs and 1 Plan and hold media briefing events representatives other community and media tours around key areas of in easy to use groups implementing progress at the national, regional and formats projects
community level 1 More depth and context based coverage ofthe progress and challenges being faced by WSBs
Strategy 4: Capacity strengthening and production of sector and project related communication tools and materials undertaken centrally to build coherence and synergy across implementing bodies.
~~ Activities Outcome Partners Resource Indicators Requirements
Plan and organize a one day skill 1 Increased 1 Consultants 1 Consultancy
building workshop to orient top policy capacity to 1 Logistics
and programmatic staff on key aspects implement key 1 Meeting costs
ofthe communication strategy components of 1 Writing, design and Provide technical assistance to the strategy printing costs strengthen the capacity oftop policy makers and program staff to integrate communication as a strategic input in their work Help communication staff at WSBs and WSPs with the design and implementation ofcommunication strategy so that they can integrate and align it with the Project objectives Develop a communication planning guide for staff in the communication departments at respective WSBs and WSPS Develop the capacity of communication staff to develop basic communication tools and materials at WSP level to help them engage with customers
150 Strategy 5: Motivate and energize participating institutions through an annual inspirational event in the format ofa “Water Forum” designed to promote knowledge sharing and motivate and inspire sector bodies to apply best practices in their work.
I Activities I Outcome I Partners Resource Indicators Hold an annual “Water Forum” on An annual . MWI programmatic achievements ofthe stakeholder . Development Partners meeting costs sector as a forum to report to workshop held Writing, design and stakeholders and share experiences every year layout of materials . Implement leadership awards for the Leadership water sector to recognize members Award Scheme who excel initiated
151 Annex 18: Informal Settlements Strategy KENYA: WATER AND SANITATION SERVICE IMPROVEMENT PROJECT
Context
1. Informal settlements constitute between 40 and 70 % ofthe population in major urban centers in Kenya. These settlements are characterized by poor water and sanitation service provision. In its current National Water Services Strategy, the Government ofKenya (GOK) aims at achieving the MDG for WSS by fast tracking affordable and sustainable access to safe water and sanitation in the settlements ofthe urban poor. This will be achieved through defining national standards for low-cost technologies and increasing the number ofpublic/communal outlets and finding innovative ways to extend piped water services.
2. Water Supply and Sanitation (WSS) utilities currently play a minor role in the direct provision ofservices to informal settlements. This is due to several factors including unclear tenure, lack ofdevelopment control (e.g., planning approval, plot coverage ratios, etc). Although 80% and 90 % ofthe population in Mombasa and Nairobi respectively receive water from the main piped network, more than 60% receive water services indirectly through kiosk, vendors, neighbors, etc. Where networks do exist in informal settlements they are characterized by low quality pipes that are laid close to or in poor drainage ways. In small and medium sized towns a large number oflow income households rely on traditional sources.
3. Utilities perceive service provision to the poor as commercially unattractive despite many studies pointing to the contrary. On the other hand, many ofthe informal providers are organized in cartels, profiting from their monopoly power by distorting competition and creating artificial shortages. Nevertheless, there are other informal providers who could be formalized and brought under a regulatory regime to benefit the poor.
4. Development partner hnds should not only be utilized to improve services to existing consumers by upgrading existing systems, but should also focus on providing services to the urban poor through low cost technologies and innovative solutions to access piped water, which could offer fast tracking ofaccess in the urban setting. The low cost technology already in place does not respond to minimum requirements and is therefore often not sustainable. A recent World Bank study revealed that only 19% ofNairobi’s Informal settlements have access to a supply ofpiped water, in the form ofeither in-house water connections or yard taps. Only about one-quarter ofthe slum households have access to private toilet facilities. The majority (68%) of slum dwellers rely on shared toilet facilities and an additional 6% are even worse off- they have no access to toilets and have to use open areas and/or “flying toilets” (i.e. plastic bags that are tied up and then flung away)48.
5. The UN-HABITAT’Sreport on Achieving Global Goals in Small Urban Centers: Water and Sanitation in the World’s Cities (2006) cites that small urban centers (especially those in low-income countries) experience severe problems in securing long-term finance for urban
48 Kenya - Inside Informality: Poverty, Jobs, Housing and Services in Nairobi’s Slums (May 31, 2006), World Bank Report No. 36347-KE
152 development and especially for water and sanitation projects. They also lack the political influence to secure credit on their own.
6. Additional constraints to financing include low levels ofconsumer affordability, inadequate and unreliable revenue to cover operational costs, debt financing and political and foreign exchange risks associated with getting short-term funds from external sources. Such constraints make urban centers with low incomes unable to afford the type ofsystems that would enable them to meet the MDGs without subsidies.
Lessons from Kenya and the Region
Water Supply
7. In Uganda, the National Water and Sewerage Corporation (NWSC) introduced a pro-poor tariff structure and social connection policy. The pro-poor tariff structure is financed by higher water tariffs for industrial and commercial consumers. The social connection policy is funded by a 10% increase on all water tariffs and was introduced in 2004. This allowed the average price for new connections to be lowered from about €1 12 to €22. This contributed to an increase in the number of connections from 3,000 per annum to 28,000 per annum in 1998 to 2006.
8. Through IDA support, Senegal implemented a water project that focused on institutional and infrastructure support. The project was very effective in increasing the access ofthe urban poor to safe water. Through water network extensions and the construction of 8 1,000 new social connections (compared to the 34,000 initially planned) and 400 public standpipes, it is estimated that about one million additional people country-wide (twice as many as initially expected) have been served directly by the project.
9. SociCtC des Eaux de CGte d’lvoire (SODECI) is a private company providing water in all the cities and towns ofC8te d’lvoire, including over 600 small towns with populations of 1,000 to 20,000 each. Abidjan, with 3.3m inhabitants has a significant proportion oflow-income population who live in informal settlements, established illegally on non-residential land. Since the start ofthe concession contract and the establishment ofWater Development Fund - FDE in 1987, SODECI has implemented a clear policy for serving poor people. The three main elements ofthe policy are: (i)to increase the connection rate among poor families through cross- subsidy; (ii)to make the water tariff affordable to low-volume users; and (iii)to extend a reasonable level of service into informal settlements. SODECI now serves 2.7m people through household connections and another 0.3m people through water resellers leaving only 0.3m people who obtain their water by other means such as public tap stands or dug wells. In summary, sector performance in Abidjan has been impressive, due largely to the strong performance ofSODECI. This has been supported by the government’s commitment to private sector participation and an institutional framework that protects the private operator.
10. Small Networks. Small networks based on motorize boreholes do provide an alternative supply to low income groups. In Zambia, Water Trusts are small network providers which have been established at the initiative ofdonors, in coordination with the local communities, in peri- urban areas ofthe capital city Lusaka. They collectively serve almost as many people as the
153 public utility, Lusaka Water Services Company (37% ofLusaka’s PO dation are served by Water Trusts as opposed to 43% by LWSC, leaving 20% un-served) 4F.
11. Contractual Providers. In Kenya, the commercially managed Nyamasaria Water works in Kisumu has been informally contracted by the Lake Victoria South Water Services Board to provide gate-sales ofwater to the low-income region ofNyamasaria next to the Kibos River. This arrangement has provided hand-cart and bicycle vendors an accessible and reliable source ofpotable water. The long-term viability ofsuch informal arrangements would need to be carefilly worked out to take into account the interest ofall parties.
12. Boreholes and Wells. In informal settlements there is a high risk offecal contamination in shallow well water. They tend to be used as the source for washing and bathing water. Deep boreholes, though microbiologically safe, have variable inorganic quality water. An example is the Orongo village ofthe Lake Victoria region where borehole water has a naturally high fluoride levels at twice the WHO standard which is a cause for longer-term concern5’. The other major concern on the use ofthe borehole non-network solution is the high capital and O&M costs. Where communities are located very far from the utility network, the project could finance improvements such as well protection and development/improvement of drawing points around boreholes.
Sanitation
13. Pit Latrines. Pit latrines are the most common sanitation solution in the region’s informal settlements. Eco-sanitation has also been introduced in some regions. They are recommended where space, non-rocky soils, safe emptying mechanism, and hygiene awareness are available.
14. Septic Tanks. They are practical but relatively expensive hence only recommended in situation where return on investments in the informal settlements is possible.
15. Public latrines with or without Bio-digesters. This type ofsanitation service provision is now common in the informal settlements ofKenya especially in Nairobi. According the study on small scale providers (SSPs) in Kibera”, commercially and private owner managed public latrines and showers tend to be more popular and offer better services and maintenance quality. Charges per use range from 2.5 US cents to 3.8 US cents per use. Bio-digesters have been installed in Kibera with the assistance ofNGOs and development partners. They provide additional income through bio-gas production for cooking along side the public toilets.
Hygiene Promo tion
16. Not having access to sanitation means that people are forced to defecate in fields, ditches and buckets. The “flying toilets” ofKibera in Nairobi highlight what it means to be without sanitation. Lacking access to toilets, people defecate into plastic bags that they throw onto the
49 Regulation of water and sanitation services: getting better service to poor people, TrCmolet and Halpern (2006) 50 Baseline Study and Safe Drinking Supply Strategy for Orongo Village, Lake Victoria Basin, Kenya, Levicki (2003/4) 51 Understanding Small Scale Providers of Sanitation Services : A Case Study ofKibera, WSP (2005)
154 streets. The absence oftoilets poses particularly severe public health and security problems for women and young girls.
17. Clean water, the sanitary removal ofexcreta and personal hygiene are the three foundations for any strategy to enhance public health. Experience has shown that constructing water supply and sanitation facilities is not enough to improve health. Changing hygiene behavior is complex and labor intensive, but effective hygiene education can reinforce positive attitudes and behaviors and reduce or prevent risks. Therefore, life skills-based hygiene education must accompany infrastructure investments if these are to ensure a long-lasting public health interventi~n~~.
Objectives of Project Intervention in Informal Settlements
18. The overall objective is to provide sustainable, affordable and reliable water and sanitation facilities to residents ofthe informal settlements. This will be realized over a five year period as a result ofimproved institutional arrangements in addition to rehabilitated and extended infrastructure. The interventions will target low income households in low income settlements in the areas ofAWSB, CWSB and LVNWSB. The project will address this issue through a fourfold strategy, as follows:
(i)Network intensification in low income neighborhoods; (ii)Introduction ofthe social connection policy; (iii)Adoption ofthe life line tariff for the first five cubic meters (5m3) ofconsumption; and (iv) Implementation ofthe CBO and Community-based initiatives in low income neighborhoods.
Operational Strategies
19. These objectives will be realized through both network-based and non-network solutions.
Network-based solutions
20. A number ofnetwork based solutions will be utilized. The recommended actions include:
(a) Network Intensification. The utility network in many cases reaches the fringes ofthe informal settlements leaving internal distribution to the hands ofindividual kiosk owners, CBOs and other local providers. Currently, the kiosk operators lay lengths ofpipe, as much as 1,500 meters, to reach the few trunk mains and gain access to the network53. This system creates a ‘spaghetti ’ network resulting in high unaccounted for water and risk of contamination due to poor standards ofpipe installations. Formal network intensification by the utility as seen in Dakar, Senegal provides sustainable access to the informal settlements. Sewerage network intensification has also been used to reach the poor though with less success than water. Network intensification in line with the Kibera Water Distribution
52 Toolkit on Hygiene Sanitation and Water in Schools, World Bank, Unicef, WSP, (2005) ’’ Rogues No More? Water Kiosk Operators Achieve Credibility in Kibera, WSP (2005)
155 infilling component under the Bank-supported Third Nairobi Water Supply Project (TNWSP) will help rationalize the system.
(b) Bulk Supply. Bulk supply to organized groups within the informal settlements will also be implemented through the installation ofbulk meters and the appointment ofmaster operators for secondary lines within the informal settlements. Lessons from the Delegated Management Model (DMM) arrangement being implemented in Kisumu will be utilized in selected informal settlements.
(c) Social Connections. Connection subsidies, such as “social connections”, are often more effective than consumption subsidies in targeting subsidies to poor households, as long as eligibility criteria are well defined for awarding such social connections. As a first step, connection charges can be reduced by eliminating additional costs which artificially increase the cost ofa new connection or the fixed charge for the connection, such as meter rental costs. As a second step, connection subsidies can be introduced on an output-basis, although that would usually require that the tariff structure and the remuneration formula for the operator maintain adequate incentives to serve the poor once they have been connected. The experience from Uganda, Cote d’Ivoire and Senegal supports the social connection approach which has led to success in improved access in informal settlements.
(d) Kiosks. The majority oflow income households in Kenya purchase water from kiosks vendors located between 40 and 200 meters from their dwellings. Many ofthe kiosks are owned by individuals. There is need to improve dialogue with the kiosk operators to improve utility billing, secondary networks and overall performance. The kiosk approach can be scaled up through the creation ofassociations in line with the Maji Bora Kibera (MBK) experience in Kibera. These settlement-based associations will create the necessary link with the utilities.
(e) Lifeline Tariff Regimes. These tariffs, also called ‘increasing block tariff‘ or ‘social tariff , are designed to provide minimal amounts ofwater at low prices to households. Under a lifeline tariff, the first block ofwater used (usually up to 5m3 per month) is provided to households for free or for a nominal price, with higher blocks carrying increasing per-volume prices. To avoid capture by higher income groups, a pro-poor alternative would be to commit to operating a life-line tariff on all community bulk supply schemes and public stand- posts54.
Non - network based solutions
21, Getting WSS services to poor households in urban areas raises specific challenges for service provision and regulation. Most ofthe time, they are not connected to the main utility network, particularly if connection charges are high or if they cannot obtain access to the service for lack ofland tenure. Poor customers are usually served by a wide spectrum ofservice providers, often operating in the informal market. They often pay a lot more to obtain water than if they were connected to the main network. Even when they are connected, they would tend to receive poor quality or intermittent services, as they often reside in areas that get served last.
54 Prospects for the poor, Water reforms and private sector participation in Dar es Salaam, Tanzania, WaterAid
156 22. Through linking the project with these ongoing activities, the non-network solutions proposed will provide a higher benefit to the informal settlements habitants.
Guidelines on operational procedures and implementation arrangements
23. The WSBs will delegate the management ofinterventions in informal settlements to the Water Service Provider (WSPs), but will retain the responsibility ofoversight and confirming the outputs. The principles for services to informal settlements are demand responsiveness, local participation, tailored technological solutions, and packaging ofwater, hygiene and sanitation. The WSPs will provide leadership but work in collaboration with the local private sector, NGOs and community groups in the implementation ofboth the infrastructure works and the community organization aspects. The WSPs will ensure that community awareness, capacity building and mobilization are carried out ahead of infrastructure works to ensure local ownership and buy-in for the developments. It will contract NGOs to support enumeration and planning surveys to tailor the interventions on the ground. Thereafter, the WSPs will approve the designs, guide the implementing partners and maintain full responsibility for the quality ofthe outputs.
24. An implementation manual will be adopted by partners to provide a point ofreference and guidelines for the execution ofthe component. The manual will stipulate the project implementation cycle, outputs, time lines, key resources, roles and responsibilities. Issues to be addressed include:
0 Undertaking of a baseline survey on the water and sanitation facilities in each ofthe targeted informal settlements, aimed at mapping out the areas in most need of intervention; 0 Campaigns and community engagement processes. NGOs and consumer organizations will be supported to lead the development and implementation of a strategy and action plan to carry out direct consumer engagement in WSS services at community level. Hygiene promotion will be one ofthe major focus; 0 Management of the community sub-project cycle. The selection ofthe community projects will be done at the regional level to ensure conformity with area service improvement programs. Targeting ofthe poor will be done to ensure equity. Selected CBO’s should be properly registered; 0 Post-construction arrangements for management (community or small scale providers). NGOs and CBO in the informal settlements will be engaged by the WSPs to provide assistance in issues concerning consumers, revenue management, and system O&M. Training and capacity building support. The WSPs and implementing partners will undergo an initial training on the implementation process. The approach will ensure that interventions would package water, sanitation and hygiene to maximize hll benefits and health impacts. Annual reviews will be done to assess progress, review capacity gaps and update the skills ofkey implementing partners. All the CBOs which will apply for the water points and ablution blocks and other activities will undergo training. The CBOs will be trained on maintenance and sustainability ofthe projects, leadership skills,
157 financial management, revenue collection and their responsibility in the management of the service vis-a-vis the WSP.
Targeted Informal Settlements
25. Athi Water Services Board (AWSB). AWSB would focus on the informal settlements in Nairobi. There are 12 major informal settlements in Nairobi city. Plans are underway for infrastructure development to be undertaken in seven informal settlements with the support of the European Water Facility for ACP countries (EUWF), the Nairobi Water Sewerage Company, Pamoja Trust (NGO), Maji NaUfanisi (NGO) and WSP-AF. The remaining five informal settlements ofKibera, Korogocho, Mathare, Soweto Kayole and Kawangware will be targeted by the project. A total number ofabout 935,000 inhabitants live in these five informal settlements, ofwhich about 757,000 currently has inadequate access to safe water55.
26. Coast Water Services Board (CWSB). CWSB would focus on the informal settlements in the WSP operational areas ofMombasa, Malindi, Kilifi and Lamu, with a target informal settlements population ofabout 2 12,000.
27. Lake Victoria North Water Services Board (LVNWSB). LVNWSB would focus attention on the informal settlements in the WSP operational areas ofEldoret, Western, and Nzoia, with the target informal settlements population ofabout 88,000.
’’ Estimated based on 19% household access to water in the form of a water connection or yard tap.
158 IBRD 33426 KENYA
SELECTED CITIES AND TOWNS MAIN ROADS PROVINCE CAPITALS RAILROADS NATIONAL CAPITAL PROVINCE BOUNDARIES RIVERS INTERNATIONAL BOUNDARIES
34°E36°E38°E40°E42°E
SUDAN To Murle
To Karungu Juba Lotikipi ETHIOPIA Plain Lokichokio Chalbi 4°N To 4°N DeserDesertt To Ramu Mandera Imi Kakuma Dila ls il Lake H NorthNorth Horr Sololo Turkana Moyale sa is n Lodwar a l D e w k r El WakWak u Buna T
Lokichar South Horr UGANDA Marsabit TarbajTarbaj RIFT VALLEYVALLEY s. tn 2°N m Kangatet M 2°N ua o S ot d Lo N ga WajirWajir Bo C ga h s l er i Lak Bor a g n l H ga i M SOMALIA il ny o ls ’ir To Maralal Ng Bilesha Plain Mbale Kitale Kapedo Ewaso Mando Archer’sArcher’s Gashi Post Garba NORTHNORTH To TTulaula Kampala Eldoret Marigat EASTERN WESTERN Mbalambala ra Kakamega Isiolo De To Lak Kismaayo Butere Nyahururu Falls EASTERN 0° Nanyuki 0° a Kisumu Mt. Kenya n (5,199 m) Ta Nakuru Nyeri Kericho Garissa NYANZANYANZA Gilgil CENTRAL Embu Nguni Lake Karungu a ar Thika M Bura To Narok To Victoria Musoma Kolbio Bur Gavo Lolgorien Ma NAIROBI Kitui Ng u anger Esc abe ar T Pla li pm Machakos hua in en Konza t COAST Magadi Bodhei 2°S Ya Ikutha 2°S To tta thi Seronera P A lat ea Garsen Lamu Kibwezi u Namanga
To Arusha TsavoTsavo Galana Tsavo
To VolVol Malindi Moshi INDIAN KENYA TANZANIA Mackinnon Park OCEAN
This map was produced by the Map Design Unit of The 4°S Mombasa World Bank. The boundaries, Kwale colors, denominations and 0 40 80120 160 200 Kilometers any other information shown on this map do not imply, on the part of The World Bank Shimoni Group, any judgment on the 0 40 80 120 Miles To legal status of any territory, Dar Es Salaam or any endorsement or acceptance of such 34°E36°E38°E40°E boundaries.
NOVEMBER 2004